Crude Oil Slips Despite Reports U.S. May Trim Domestic Output

 Crude Oil Slips Despite Reports U.S. May Trim Domestic Output
imageCommodities9 hours ago (Mar 20, 2020 09:37AM ET)

(C) Reuters.

By Peter Nurse

Investing.com – Oil markets lost early gains Friday, turning sharply lower after doubts emerged over the significance of reports that U.S. authorities could be looking at methods of curbing domestic supply.

AT 09:45 AM ET (1345 GMT), U.S. Crude Oil futures traded 5.7% lower at $24.44 a barrel, while the international benchmark Brent contract dropped 2.6% to $27.74.

Oil prices have collapsed about 40% in the last two weeks since talks between the Organization of the Petroleum Exporting Countries and its allies, including Russia, broke down, resulting in Saudi Arabia, the world’s biggest exporter, ramping up supply.

However, a report by The Wall Street Journal suggested that the U.S., the biggest producer, is looking at imposing production quotas on domestic companies for the first time in decades, a move aimed at combating the supply glut.

The U.S. has a history of regulating production through the Texas Railroad Commission back to before World War 2, but abandoned the practice nearly 50 years ago.

Added to this is another WSJ report that the U.S. may lean on Saudi Arabia and Russia to rein in their output, with the threat of sanctions directed at the latter in particular.

“An end of the price war means that both Saudi and Russia would bring back their production levels to where they were prior to the OPEC+ talk in early March,” said ING, in a research report. “Yet this is still questionable.”

“Another key question is whether they have the intention to come back to the table to discuss the previous agenda of further cuts,” ING added.

After all, Bloomberg reported that President Vladimir Putin sees the price war initiated by Saudi Arabia as ‘blackmail’ and is refusing to give in.

On the other side of the equation, demand destruction is only getting worse in the near term, as more and more of Europe and North America goes into lockdown. California, the most populous U.S. state, issued a “stay at home” order to residents on Thursday, Governor Gavin Newsom telling residents they should only leave their homes when necessary during the pandemic. He earlier estimated more than half of the 40 million people in his state would contract the coronavirus in just the next two months.

In addition, Germany’s richest state, Bavaria, extended its prohibition on non-essential activity. Germany’s federal government is expected to tighten its policy on closing non-essential business at the weekend, with the inevitable impact on fuel demand.

Crude Oil Slips Despite Reports U.S. May Trim Domestic Output

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Leave a Reply

Your email address will not be published. Required fields are marked *