Oil pumping jacks, also known as “nodding donkeys”, operate in an oilfield near Almetyevsk, Tatarstan, Russia, on Wednesday, March 11, 2020.
Andrey Rudakov | Bloomberg via Getty Images
Oil prices fell on Friday, coming off their biggest one-day gains in the previous session after U.S. President Donald Trump said he had brokered a deal between Saudi Arabia and Russia to cut output, but made no offer to reduce U.S. production.
Brent crude futures fell 3%, or 9 cents, to $29.05 as of 0127 GMT, after having soared 21% on Thursday.
U.S. West Texas Intermediate (WTI) crude futures fell 5.2%, or $1.32, to $23.98 a barrel, after having surged 24.7% on Thursday.
Friday’s drop reflected market skepticism over whether a deal to call off a damaging Saudi-Russian price war would go ahead if there was no cooperation from other producers including the United States. Trump told reporters at the White House late on Thursday he had made no offer to cut U.S. output.
“Both Riyadh and Moscow will also be looking for participation from U.S. producers, and this may prove now to be the biggest obstacle to an agreement,” Royal Bank of Canada analysts said in a note.
Trump said he had spoken with both Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin on Thursday, and said he expected they would cut oil output by as much as 10 million to 15 million barrels per day (bpd).
Even with the huge gains on Thursday, prices have still slumped nearly 60% this year as oil demand has plummeted due to the coronavirus pandemic slashing demand even as Saudi Arabia and Russia said they would boost output in April amid their price war, raising the prospect of a flooded market.
Analysts said even if Russia and Saudi Arabia agreed to cut production by as much as 15 million bpd, that would not be enough to balance the market in face of a deep economic recession.
“The 10-15 million bpd oil production cut reportedly being brokered by President Trump is a great start, but deeper cuts will likely be needed to get through a difficult Q2,” said Stephen Innes, chief global market strategist at AxiCorp.
A deal between Russia and Saudi Arabia could effectively establish a floor for WTI in the $30s, he said.
With the coronavirus pandemic worsening, the global market is facing a huge oversupply of around 25 million bpd. Cutting 10 million bpd of supply would at least help ease a shortage of crude storage capacity, Rystad Energy said.
“Running out of storage capacity would result in a complete collapse of the oil market,” Rystad’s head of analysis, Per Magnus Nysveen said.