Investing.com - The question of what the United States will put down as its first-ever agreed production cut on oil dominated trading in crude on Wednesday, with prices rising almost 2% on output drops indicated by the government’s energy arm.
U.S. crude production was estimated to have fallen to 12.4 million bpd last week from the 13 million bpd noted during the week to March 27, the Energy Information Administration said in its weekly supply-demand report.
In a separate report on Tuesday, the EIA expected U.S. production to average 11.8 million bpd through 2020, adjusting to demand lost to the coronavirus crisis. U.S. crude output hit a record high of 13 million bpd earlier this year.
West Texas Intermediate, the New York-traded benchmark for U.S. crude, was up 42 cents, or 1.8%, at $24.05 per barrel by 1:30 PM ET (17:30 GMT).
Brent, the London-traded global benchmark for crude, was up 11 cents, or 0.4%, at $31.98.
The market rose despite the EIA reporting a whopping 15.2-million-barrel jump in U.S. crude stockpiles for the week ended April 3, adding to the previous week’s gain of 13.8 million barrels.
Market participants believe the 600,000 bpd production drop reported by the EIA, as well as its expectations for a further decline of 600,000 bpd — based on the agency’s reduced production forecast for 2020 — will form the US “offer” for cuts debated at world producer meetings this week.
OPEC is scheduled to hold a video meeting on Thursday with Russia and other allies under the OPEC+ initiative to discuss output cuts that could mitigate demand lost to the Covid-19 crisis.
Energy ministers from the Group of 20 countries are to meet on Friday through another video link to discuss the same, with Energy Secretary Dan Brouillette expected to represent the United States.
Analysts said they expect Brouillette to offer the EIA data as proof and contribution of U.S. cuts to production.
“Brouillette already (likely) gave in today's EIA weekly report (as) the U.S. supply cut contribution to GLOPEC,” Olivier Jakob, head of Zug, Switzerland-based energy consultancy Petromatrix tweeted, referring to the G-20 meeting.
That will be consistent with the message that has been coming out of the White House since President Donald Trump initiated this week’s producer meetings on oil.
Trump, who got the ball rolling after calling on Saudi Crown Prince Mohammad bin Salman and Russian President Vladimir Putin to save the market, said on Monday he wasn’t considering additional U.S. cuts above what was “automatically” happening on the market front.
But the implied 1.2-million-barrel offer by the United States seemed like a drop in the bucket, considering the demand loss of 20 million to 30 million bpd estimated by analysts.
Russia has suggested it cannot offer more than 600,000 bpd because of fundamental constraints in its oil infrastructure. At the same time, the Kremlin has said that “market-driven oil production declines are not the same as actual production cuts” — a warning that the U.S. offer of “automatic” market-based declines won't be enough.
Saudi Arabia hasn’t committed to a hard number yet.
“It’s possible OPEC won’t come to an agreement because the U.S. says a cut is happening ‘naturally’ and it won’t do more,” said Tariq Zahir, founder of the oil-focused Tyche Capital Advisors fund in New York. “In that case, we could see oil prices drop to the teens in a rather accelerated fashion.”
WTI hit an 18-year low of $19.27 last week.
