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Oil Bounces Back With Output Cuts Looming, Storage Filling


By Alex Longley

(Bloomberg) Oil clawed back its recent heavy losses as output cuts from major producers seek to stymie an unprecedented global glut.

Futures rose by more than $2 in New York to over $14 a barrel. Russian oil companies will cut output by about 19% from February levels, the nation’s Energy Minister, Alexander Novak told the Interfax news agency. Nigeria, which has been struggling to sell its oil even at $10 a barrel, will ship the lowest volume of its key Qua Iboe crude grade since 2016 in May and June.

There have been tentative signs of a recovery in European physical oil markets. Key pricing contracts in the North Sea and Russia have rallied in recent days, though there are still concerns that the world is on the brink of filling its storage capacity. Major producers were due to start output cuts on May 1, but some, including Saudi Arabia, are now curbing output early.

Inventories at the key U.S. storage hub set to expand further

“There is some extra bargain hunting by investors who believe that we may have seen the floor in oil prices,” said Hans Van Cleef, senior energy economist at ABN Amro AV. “Because of the low base, double-digit price gains or declines seem to be the new normal.”

Storage capacity is being tested as a worldwide glut of fuels and crude expands due to coronavirus-led demand destruction. Still, there are tentative signs of a fledgling recovery in demand. Spain’s pipeline operator saw more moderate consumption declines than the previous week, while U.S. gasoline sales rose in the week ending April 18, according to OPIS.

Prices
  • WTI for June delivery climbed $2.26 to $14.60 a barrel as of 8:50 a.m. New York time
  • Brent for June settlement gained $1.62 to $22.08 a barrel
  • Dated Brent, a reference for two-thirds of the world’s physical crude, rose to $14.68 on Tuesday, from $13.62 on Monday, according to traders monitoring prices from S&P Global Platts

There were renewed signals of the longer-term impact of low prices on Wednesday. CNOOC Ltd. said it will cut its capital spending this year after the collapse in energy markets. In the U.S., pipeline giant Enterprise Products Partners LP cut $1 billion from its capital budget, though it said it hadn’t seen a material change in volumes on its system.

Airlines are fast emerging as a major loser from the downturn. British Airways Plc’s parent International Consolidated Airlines Group said Tuesday it is facing a $1.4 billion charge on fuel and currency hedges, while Finnair Oyj unwound some of its fuel contracts adding an expense of $60 million. Singapore Airlines has also paused its hedging due to substantial losses.

Other oil-market news:
  • The API reported Tuesday that nationwide U.S. crude stockpiles rose by 9.98 million barrels last week, which would be a 14th weekly increase if confirmed by Energy Information data on Wednesday.
  • Norway’s Johan Sverdrup crude loadings set at record 467k b/d in June, according to the program seen by Bloomberg.
  • Orders for oil-service companies in Russia may fall as much as 30%-40%, and even more in some cases, when the OPEC+ deal comes into effect, Energy Minister Alexander Novak said Wednesday.


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