Oil Price Fundamental Daily Forecast – Slight Rise on Hopes of Production Cuts as Coronavirus Weighs on Demand

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher early Tuesday amid hope that OPEC and its allies will agree to cut output as the coronavirus pandemic crushes global demand, even as analysts warn of a global recession may be deeper than expected.

After opening sharply lower on Monday, the market has clawed back most of its losses, on increased bets that Russia and Saudi Arabia will agree to cut output at a meeting on Thursday, although that would depend on the United States doing its share, sources told Reuters.

At 09:09 GMT, May WTI crude oil is trading $26.97, up $0.89 or +3.41%. June Brent crude oil is at $33.77, up $0.72 or +2.16%.

Supply Side Concerns

“Oil producers have to cut deeply and quickly if they want to avert total saturation of oil markets,” Eurasia Group said.

OPEC and other producers including Russia, had been curtailing production in recent years amid a rapid expansion of U.S. output that made the country the world’s biggest crude producer.

But that deal ended on March 31 after Russia rejected the 1.5 million barrels per day cut that Saudi Arabia had proposed in a bid to prop up falling oil prices as the coronavirus sapped demand. This kicked off a price war between the two powerhouse producers.

Late last week, President Donald Trump said to CNBC that he expected an OPEC+ deal to cut production by up to 15 million barrels.

Demand Worries

Worldwide oil demand has dropped by as much as 30%, or about 30 million barrels per day, coinciding with moves by Saudi Arabia and Russia to flood markets with extra supply after an agreement on withholding output fell apart.

Short-Term Outlook

Anything less than a coordinated production cut involving Saudi Arabia, Russia and the United States is going to be disappointing to the market. Otherwise, further price declines will be necessary to force a reduction in production. This could put a major U.S. producer out of business.

U.S. President Donald Trump said on Monday that OPEC has not asked him to push domestic oil producers to cut their production to buttress prices. He also said that U.S. output was declining in response to falling prices.

Furthermore, coordinated action by U.S. oil producers to reduce output would typically be a violation of antitrust laws.