Oil pares losses as investors weigh chance of price-war truce

Oil pared earlier losses amid signs Saudi Arabia and Russia are making progress on an agreement to curb crude output as the coronavirus wreaks havoc on the global economy.

Futures erased most of an earlier loss of as much as 11% in New York to trade near $28 a barrel. Some progress was made in negotiations toward a pact between major producers on Sunday, according to diplomats, while U.S. President Donald Trump said he didn’t think he’d need to resort to tariffs to get Saudi Arabia and Russia to reach a deal.

Meanwhile, CNBC said that Riyadh and Moscow are “very close” to an agreement in a report that cited the head of Russia’s sovereign wealth fund.

Crude surged by more than a third of its value over Thursday and Friday as an accord on output cuts started to take shape. However, doubts crept in after the postponement of an OPEC+ meeting that was originally scheduled for Monday to Thursday as Saudi Arabia and Russia traded barbs over who was to blame for the collapse in oil prices.

A lack of participation from the U.S.—the world’s largest producer—could still prove to be a stumbling block. Despite originally calling for the deal, President Donald Trump on Saturday described OPEC as a cartel and threatened tariffs on foreign oil to protect the American energy industry.

The aim of the talks is to cut production by about 10 million barrels a day, around 10% of global production. But whether that can support prices that have fallen by more than half this year as the coronavirus crippled the global economy is questionable. The International Energy Agency said Friday the deepest cuts in the industry’s history wouldn’t be enough to calm the market.

“The type of agreement you’d need to stabilize the market is a long shot given how much demand has been hit,” said Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd.

West Texas Intermediate declined 1.4% to $27.94 a barrel on the New York Mercantile Exchange as of 7:38 a.m. in London after dropping to $25.28 earlier. The contract surged 32% last week and has fallen 54% in 2020.

Brent crude fell 0.7% to $33.87 a barrel on the ICE Futures Europe exchange. It rallied 37% last week and is down 49% so far this year. The contract’s six-month contango deepened toward $5 a barrel from $3.96 on Friday, indicating an abundance of supply.

Trump walked out of a meeting with the titans of America’s oil industry on Friday without any public declaration of a plan to curtail domestic output, calling into question his ability to broker a truce between Riyadh and Moscow.

Oil diplomats are now trying to stitch together a meeting of G20 energy ministers for Friday, part of an effort to bring the U.S. on board, according to two people familiar with the situation. While both Saudi Arabia and Russia have expressed openness to coordinated production cuts, it’s unclear that can be achieved without the U.S. and other nations also taking part.

A deal to curb production is likely to happen, Stephen Innes, chief Asia market strategist at AxiCorp Ltd., said in a note released Monday. But cuts may not be enough to address the near- or medium-term oversupply, he said.

Meanwhile, Saudi Aramco is delaying the release of its closely-watched monthly oil-pricing list until Thursday to wait for the outcome of the OPEC+ meeting, according to people with knowledge of the situation. The official selling prices were due on Sunday.