Oil Futures Rally on OPEC Cut Hopes

WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled higher on Monday, with both crude benchmarks clawing back more than 4% of last week's steep losses. The rally came as investors bet the Organization of the Petroleum Exporting Countries and allied producers would agree on additional cuts to counter a coronavirus-induced slump in global oil demand.

At settlement, April West Texas Intermediate futures advanced $1.99 to $46.75 per barrel (bbl) after dropping nearly 16% last week. The new font-month ICE Brent May futures gained $2.23 to finish at $51.90 bbl. NYMEX April RBOB futures rallied 5.68 cents to $1.5396 gallon from a multiyear low $1.3955 settlement hit Friday by the now expired March contract, reflecting seasonal strength. NYMEX April ULSD contract surged 5.14 cents to $1.5287 gallon.

Oil traders continue to monitor developments surrounding an upcoming policy meeting among members of OPEC and 10 allied partners led by Russia. The group is now set to hold an additional technical meeting on Tuesday ahead of the official gathering later this week, where the coalition is expected to curb collective production an additional 1 million barrels per day (bpd) to support prices. Afternoon reports indicate Russia is tilting toward an agreement to cut 600,000 bpd shared among all producers, with Saudi Arabia shouldering additional 400,000 bpd as a short-term measure through the second quarter. If agreed, new cuts will come on top of already existing 1.7 million bpd supply agreement and will account for the largest curtailment since 2008.

Private surveys indicate the 13-member cartel pumped 27.84 million bpd in February -- the lowest output rate in over a decade. Due to a collapse in Libya's production and curtailments at Saudi oilfields, the cartel increased its compliance with pledged cuts to 128%.

According to the survey, oil output in Libya averaged just 155,000 bpd during the last four weeks, down from 760,000 bpd in January. A group of paramilitary forces blockaded Libya's oil ports as part of their ongoing offensive on the internationally recognized government in Tripoli, shutting down 1.2 million bpd of capacity at the nation's eastern oilfields.

In financial markets, global equities posted across-the-board gains on Monday, sending Dow Jones Industrials nearly 1,300 points higher and the S&P 500 up 3.4%.

As coronavirus fears intensified, investors increased their bets major central banks would coordinate monetary easing to support global expansion. Earlier in the session, Bank of Japan announced it would take necessary measures to shield the country's economy from the coronavirus induced slump in demand. Echoing the BOJ, European Central Bank said it could drive interest rates further into negative territory and begin new bond purchases. In the United States, investors now price in a nearly 100% probability the Federal Reserve would cut interest rate by 50 basis points at their March 18th policy meeting. According to CME Fed's WatchTool, markets gave only 19.9% chance last week for a 25 basis point cut.

Markets were also allayed by modest strength in U.S. manufacturing activity last month, easing some concerns over a coronavirus-related slowdown. The Institute for Supply Management reported U.S. manufacturing index edged 0.8 point lower from the previous month but held above 50-mark, which suggests continued expansion. On the other hand, industrial output across China, the world's second-largest economy, slumped to 35.7 in February, down 15 points from the prior showing in January as a result of viral outbreak of coronavirus.

Liubov Georges can be reached at liubov.georges@dtn.com

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