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 stabilising energy markets.
However, the gains were capped as global demand continues to be slammed by travel restrictions due to the COVID-19 pandemic.
May Brent crude futures was 4 cents lower at $22.72 a barrel by 8.35 p.m. ISTafter 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 traded 18 cents lower at $26.24 a barrel. U.S. crude was up 55 cents at $20.64 after settling in the previous session at $20.09, its lowest since February 2002. It traded as high as $21.89 a barrel earlier in the session.
Oil markets have faced a double whammy from the COVID-19 outbreak and a race to win market share between Saudi Arabia and Russia after OPEC and other producers failed this month to agree on deeper supply cuts to support oil prices.
Mr. Trump and Mr. Putin agreed in a phone call to have their top energy officials discuss stabilising oil markets, the Kremlin said.
Although the futures market is seeing a recovery, physical cargoes are selling in some regions at single digits, with sellers offering hefty discounts. With a plunge in prices that has knocked about 60% off oil prices this year, a commissioner with the Texas State energy regulator renewed a call for restrictions on crude production because of a national supply glut.
However, U.S. crude producers are likely facing 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.
In a 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, the widest contango spread ever seen, ahead of the May contract's expiry.
A contango market implies traders expect oil to be higher 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 their throughput because of the slump in demand for transportation fuel, with European refineries reducing output by at least 1.3 million bpd, sources told Reuters.
Exxon Mobil Corp 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 would average $38.76 a barrel in 2020, 36% lower than the $60.63 forecast in a February survey.
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