By Joe Wallace and David Hodari 

Oil prices rose ahead of a meeting where major producers are expected to agree on big output cuts to bolster energy markets laid low by the coronavirus pandemic.

Brent-crude futures, the global oil benchmark, climbed 9.6% to $36.00 a barrel. West Texas Intermediate futures, the main gauge of U.S. prices, rose 10.5% to $27.72 a barrel, lifting shares in American energy producers. Apache Corp. traded up 29% to $9.79. Exxon Mobil Corp. added 5.6%.

The gains came amid expectations that the Organization of the Petroleum Exporting Countries and its allies, led by Russia, will agree to slash production at a virtual meeting Thursday. The cartel and its partners are holding an online gathering to negotiate a truce in the Saudi-Russian price war and to debate output curbs of 10 million barrels a day.

An agreement to cut output "would be huge in terms of sentiment," said Alan Gelder, vice president of refining and oil markets at consulting firm Wood Mackenzie. "If you cut 10 million barrels, and China's recovering and Europe then recovers and the U.S. starts to come out of [the coronavirus lockdown], then oil demand gets really tight really quickly."

A conference of oil ministers from the Group of 20 major economies on Friday, convened by the International Energy Agency, could then result in a historic international deal to lower production. U.S. Energy Minister Dan Brouillette is due to take part.

Thursday's virtual meeting of OPEC and its partners is fraught with uncertainty, said Saad Rahim, chief economist at Swiss commodities trader Trafigura. "This may be the hardest meeting I've seen to call going into it," Mr. Rahim said. "All sides agree a deal needs to get done. I don't think they agree on what a deal looks like."

Prices were volatile Thursday amid conflicting reports about whether Russia would agree to production curbs, and on the baseline that could be used for a reduction in output.

Cuts of 10 million barrels a day would likely give oil prices a short-term boost, traders said. If demand starts to recover, a slower pace of oil production could help push Brent-crude prices above $40 a barrel by October, according to analysts at Goldman Sachs Group.

Production curbs could also ease logistical strains in the oil market, stopping storage facilities from overflowing with a glut of crude and lowering the cost of chartering oil tankers, which has soared.

"You have some enthusiasm from traders coming from the expectations that OPEC might reach a deal to cut output," said Paola Rodríguez-Masiu, senior oil analyst at Rystad Energy. "It won't be enough to balance the market, but it will be enough to handle the oversupply with the current available storage."

Still, even the largest collective production cuts in history may not be enough to support higher prices in the coming weeks as world-wide lockdowns pummel demand for gasoline, diesel and jet fuel. Global oil consumption is on course to plunge by almost 35 million barrels a day in April, according to Mr. Rahim.

"In the context of the current demand destruction, it's nothing," said Tamas Varga, an analyst at brokerage PVM Oil Associates, pointing to Russian media reports that Moscow is considering an output cut of 1.6 million barrels a day.

Traders will scour the fine print of any agreement. One key detail is the baseline for the decline in output. Saudi Arabia, Russia and others have started to pump more oil since earlier cuts expired at the end of March, so there is a big difference between reducing production from current levels and those that prevailed in the first quarter.

Traders will also home in on the duration of any cuts, whether there are mechanisms for enforcing compliance, and the degree of involvement that OPEC and Russia require from the U.S.

Some experts don't expect a deal to be reached. There is little incentive for Russia and Saudi Arabia to cut production given that their battle for market share has sent shock waves through the U.S. energy sector, according to Chris Midgley, head of analytics at S&P Global Platts.

"The U.S. industry is on its knees," Mr. Midgley said. "Why throw them a lifeline now?"

Write to Joe Wallace at Joe.Wallace@wsj.com and David Hodari at David.Hodari@dowjones.com

 

(END) Dow Jones Newswires

April 09, 2020 11:06 ET (15:06 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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