NEW YORK (Reuters) – Oil prices steadied on Tuesday, with the U.S. crude benchmark climbing off 18-year lows after U.S. President Donald Trump and Russian counterpart Vladimir Putin agreed to talks on stabilizing energy markets.
FILE PHOTO: A pump jack operates in front of a drilling rig at sunset in an oil field in Midland, Texas U.S. August 22, 2018. REUTERS/Nick Oxford/File Photo
Gains were limited as global demand was still being slammed by travel restrictions due to the coronavirus pandemic.
May Brent crude futures LCOc1 was 2 cents lower at $22.74 a barrel by 12:48 p.m. ET (1648 GMT) ahead of expiration after closing on Monday at $22.76, its lowest finish since November 2002. It hit a session high of $23.87. The more-active June contract LCOM0 traded 9 cents lower at $26.33 a barrel.
U.S. crude Clc1 was up 23 cents at $20.32 after settling in the previous session at $20.09, its lowest since February 2002. It traded as high as $21.89 a barrel during the session.
Oil markets have faced a double whammy from the coronavirus outbreak and a race to win market share between Saudi Arabia and Russia after OPEC and other producers failed to agree on deeper supply cuts.
Trump and Putin agreed in a phone call to have energy officials discuss stabilizing oil markets, the Kremlin said on Monday.
Despite a recovery in the futures market, physical cargoes are selling in some regions at single digits, reflecting hefty discounts.
With oil prices down about 60% this year, a commissioner with the Texas state energy regulator renewed a call for restrictions on crude production.
In a further sign of how well the market is supplied, the front-month Brent futures contract for May is trading at a discount of $13.95 a barrel to the November contract LCOc1-LCOc7, the widest six-month contango spread ever seen.
U.S. crude producers probably face cuts in April anyway as there are no buyers in physical markets for crude in the Permian, the biggest shale basin the country, or the U.S. Gulf Coast, said Scott Shelton, energy specialist at United ICAP.
“It’s just a matter of time before we see the producers be forced by the crude gatherers to cut as one cannot ‘gather’ crude when there are no buyers or tanks to store it in,” he said.
U.S. crude output fell to 12.7 million barrels per day (bpd) in January from 12.8 million bpd in December, the U.S. Energy Information Administration (EIA) said in a monthly report on Tuesday. That was the first time since July 2019 that U.S. crude output has declined two months in a row.
A contango market implies traders expect higher oil prices in the future, encouraging them to store oil now to sell later.
Saudi Arabia, de facto leader of the Organization of the Petroleum Exporting Countries (OPEC), plans to boost its oil exports to 10.6 million barrels per day (bpd) from May on lower domestic consumption, a Saudi Energy Ministry official said.
Global oil refiners, meanwhile, have cut throughput because demand has slumped for transportation fuel, with European refineries reducing output by at least 1.3 million bpd, sources told Reuters.
Exxon Mobil Corp (XOM.N) closed a small crude distillation unit at its 502,500 bpd Baton Rouge refinery in Louisiana because of low demand, sources said.
The chief economist for global commodities trader Trafigura said that oil demand could fall in the coming weeks by as much as 30% from consumption at the end of last year.
A Reuters survey of 40 analysts forecast Brent crude prices LCOc1 would average $38.76 a barrel in 2020, 36% lower than the $60.63 forecast in a February survey.
Additional reporting by Ahmad Ghaddar in London, Jane Chung in Seoul and Sonali Paul in Melbourne; Editing by David Gregorio and Marguerita Choy