Futures Movers: U.S. oil prices pare gains as OPEC+ appears to struggle to reach an agreement on output cuts

Oil futures settled lower on Wednesday as oil producers struggled to reach an agreement on production cuts in Vienna in an effort to stabilize prices on the heels of a demand slowdown sparked by the COVID-19 epidemic.

The Energy Information Administration, meanwhile, reported a sixth straight weekly rise in U.S. crude supplies, adding further pressure on prices.

“Despite subdued imports, and oil exports coming in well above 4 million barrels per day, a big drop in refining activity has propelled oil inventories to a sixth consecutive build,” said Matt Smith, director of commodity research at ClipperData. “Countering the bearish crude build has been solid draws to the products.”

April West Texas Intermediate crude

CLJ20, +1.20%

 fell 40 cents, or nearly 0.9%, to settle at $46.78 a barrel on the New York Mercantile Exchange after trading as high as $48.41. The global benchmark, May Brent crude

BRNK20, +1.39%

shed 73 cents, or 1.4%, at $51.13 a barrel on ICE Futures Europe.

Data from the Energy Information Administration on Wednesday revealed that U.S. crude supplies rose by 785,000 barrels for the week ended Feb. 28. The government agency had reports increases in each of the previous five weeks.

Analysts polled by S&P Global Platts expected the data to show a rise of 3.5 million barrels. The American Petroleum Institute on Tuesday reported a climb of 1.7 million barrels.

The EIA data also showed supply declines of 4.3 million barrels for gasoline and 4 million barrels for distillates. The S&P Global Platts survey had shown expectations for supply declines of 2.8 million barrels for gasoline and 2.4 million barrels for distillates.

On Nymex, April gasoline

RBJ20, +1.34%

 rose 2.4 cents, or 1.6%, to $1.5555 a gallon, while April heating oil

HOJ20, +1.06%

 settled little changed at $1.5332 a gallon.

April natural gas

NGJ20, +0.05%,

meanwhile, rose 2.7 cents, or 1.5%, to $1.827 per million British thermal units.

The EIA also reported that domestic production edged up to a fresh all-time high of 13.1 million barrels a day and “exports from the U.S. climbed to their second highest level on record, suggesting that the U.S. is continuing to capture market share from OPEC+ producers,” said Tyler Richey, co-editor at Sevens Report Research. “Both of those developments are bearish.”

On Wednesday, the Joint Ministerial Monitoring Committee, or JMMC, which monitors compliance with the earlier production-cut agreement, held a gathering, ahead of the Organization of the Petroleum Exporting Countries member meeting Thursday and the member meeting with allied non-members, a group collectively known as OPEC+, on Friday.

At a technical meeting last month, OPEC+ recommended extending existing cuts of 1.7 million barrels a day, which conclude at the end of March, to the end of the year, and suggested a further output adjustment through the end of the second quarter.

On Wednesday, however, the de facto leader of OPEC, Saudi Arabia, and non-member Russia are reportedly at odds, with the Saudis pushing for an additional supply reduction as large as 1.5 million barrels a day, while Russia favors maintaining output at current level through the end of the second quarter, Bloomberg News reported, citing comments from delegates.

“The market needs curtailment of 1 million daily barrels, and Russia’s reluctance to join is weighing in,” said Manish Raj, chief financial officer at Velandera Energy. “A total breakdown of the OPEC+ alliance is not expected, but Russia’s lack of participation in additional cuts is a possibility and would put OPEC in an awkward position of having to decide between cutting all alone and allowing oil prices to decline further.”

Oil prices did get a boost on news that Chinese factories are restarting and traffic is emerging on the roads, said Raj. “As China gets back on its feet, oil producers take a sigh of relief that the impact of the coronavirus is short lived.”

Still, the viral outbreak has shutdown swaths of China’s economy, one of the biggest importers of crude oil, and the spread of the deadly disease also threatens to have a pronounced impact on global demand because economists fear that the outbreak could lead to a world-wide recession if left unchecked.

“We’ve seen some strong responses already from the various monetary authorities in recent days and some governments have also announced some bold measures, with others likely to follow,” said Craig Erlam, senior market analyst at Oanda, in a Wednesday research report, referring to measures by central banks to limit the economic impact of the coronavirus outbreak that originated in Wuhan, China in December and has sickened around 92,000 world-wide.

Read: Coronavirus and Russia pose the biggest challenges for OPEC+ efforts to lift prices

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