Oil jumps ahead of ‘make-or-break’ OPEC meeting

Oil prices moved higher on Thursday, ahead of a pivotal meeting in which OPEC and its allies, known as OPEC+, will discuss production cuts as the coronavirus pandemic continues to sap demand for crude.

U.S. West Texas Intermediate traded 5.3%, or $1.34, higher at $26.43 per barrel, while international benchmark Brent crude rose 3.5% to $33.98 per barrel.

Some of the gains were pared after a Kremlin spokesman said Russian President Putin had no plans to discuss oil policy with President Donald Trump, according to a report from Reuters. Saudi Arabia also reportedly said any output cut would be from the elevated production levels it reached this month, according to Reuters citing a source briefed on Saudi Policy.

The virtual meeting, which was initially supposed to take place on Monday, will begin around 10 a.m. ET. President Donald Trump has fueled hopes of a cut far larger than any deal OPEC+ has ever agreed on before, suggesting the energy alliance could take between 10 million to 15 million barrels of crude off the market.

The meeting comes as relations between some of the world’s largest producers has grown fraught, and Saudi Arabia and Russia have signaled that any cut would need to include action from non-OPEC nations such as the U.S., Canada and Norway.

“OPEC+ is trying mightily to cobble together a sizable production cut, and they are in full spin mode to try and rally prices,” Again Capital’s John Kilduff told CNBC. The “teleconference will be a make-or-break moment for the oil market. The math on a 10 million barrel per day cutback, which is the minimum necessary to stabilize the situation, is almost impossible to compute.”

Energy ministers from the Group of 20 (G-20) major economies will convene for their own extraordinary meeting on Friday, in which Energy Secretary Dan Brouillette is expected to participate.

The G-20 presidency said Tuesday that the meeting would be held “to foster global dialogue and cooperation to ensure stable energy markets and enable a stronger global economy.”

When it comes to U.S. energy companies, Trump has commented that market forces will prevail, and on Wednesday said that producers have “already cut way back.” 

RBC global head of commodities research Helima Croft said she believes the chances “are greater than even” that “a broad framework agreement to curb output by a big headline number” can be achieved, but noted that “the situation remains extremely fluid.” 

“There are several land mines lurking right below the surface that could still blow up the negotiations at the 11th hour,” she said in a note to clients Thursday.

At OPEC’s last meeting in early March, de facto leader Saudi Arabia proposed cuts of 1.5 million barrels per day to combat falling demand. But OPEC-ally Russia rejected the proposal, sparking a price war between the two powerhouse producers. Saudi Arabia slashed its oil prices to gain market share, and also ramped up production to record levels above 12 million barrels per day.

Since early March, the outlook for oil has changed drastically as the pandemic spread, with much of the world now staying home. Oil prices sank to their lowest level in nearly two decades. WTI and Brent both fell more than 50% in March for their worst month on record. The first quarter was also the worst in history, with WTI shedding 66%, while Brent fell 65%. 

Amid the decline, which has pressured highly-leveraged U.S. oil companies, President Donald Trump sought to broker a deal between Saudi Arabia and Russia. On April 2 Trump told CNBC that he had spoken to Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman and that he expected them to announce a record production cut.

American drillers are still pumping near record levels as the world is coming to the edge of its ability to store oil. The U.S. oil industry is divided on whether it could or should contribute to production cuts in an effort to stabilize prices.

The American Petroleum Industry opposes cuts, saying such a move would harm the U.S. industry. In Texas, however, Ryan Sitton, one of the three members of the Texas Railroad Commission, has said that the state would consider participating in such a deal.

“The coming extraordinary producing-countries meeting is the only hope on the horizon for the market that could prevent a total price collapse and production shut-ins,” said Rystad Energy’s head of oil markets Bjornar Tonhaugen.

– CNBC’s Sam Meredith contributed reporting.