WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied for the second day Friday amid emerging signs of a multilateral supply deal between members of the Organization of Petroleum Exporting Countries, Russia and North American producers as they attempt to coordinate a global response to balance a heavily oversupplied market.
On the session, May West Texas Intermediate futures surged $3.02 to close at 2-1/2 week high $28.34 barrel (bbl) and front-month ICE Brent June contract rallied $4.17 to $34.11 bbl. Both crude benchmarks climbed over 30% in their first weekly advance in over a month. NYMEX RBOB May contract moved 2.88 cents higher to $0.6916 gallon, with the gasoline contract gaining 21% in value this week. NYMEX ULSD May contact surged 7.55 cents on Friday to settle at $1.0706 gallon but remained little changed on the week.
The two-day rally was triggered by what appears to be a breakthrough in the Saudi-Russian price war after both countries agreed to meet via teleconference Monday, April 6, to debate a new supply agreement. The OPEC+ alliance is reportedly considering cutting production between 6 milion and 10 million barrels per day (bpd) as early as this month.
Russian President Vladimir Putin said Friday Russia was ready for deep cuts amid an "unfavorable market," and sought the United States and Canada to join the effort in order to ensure an agreement is effective. The Canadian province of Alberta, home to the world's third-largest oil reserves, said it is open to joining any potential global pact to arrest sliding oil prices.
"We will continue to stress that we need to work together as a world to get through this economic crisis," said Canadian Prime Minister Justin Trudeau.
The Trump administration scheduled an emergency meeting with the heads of top U.S. oil companies Friday, including CEOs from Exxon Mobil, Chevron and Devon Energy. It remains unclear what was discussed, while the Texas Railroad Commission expressed cooperation in coordinated production cuts. The state regulator of oil and gas producers indicated Friday it would agree to "temporal" curbs.
Reports indicate one of the measures being considered at the White House to lend support for oil prices is shutting down production platforms in the Gulf of Mexico as coronavirus infections surge at these facilities. The U.S. Coast Guard Friday said that as of Wednesday there were 14 workers on five different offshore production facilities in the Gulf of Mexico that have tested positive for COVID-19. Analysts estimate Gulf output at 2 million bpd or 15.4% of total U.S. production at 13 million bpd.
Regardless of cuts, analysts believe there will be unavoidable voluntary reductions from domestic producers due to an unfavorable price environment. Baker Hughes on Friday reported the U.S. oil rig count posted the largest weekly decline in five years since last Friday, down 62 to 562 rigs, the lowest count since January 2017. The number of rigs in the most prolific basin, the Permian, fell by 31 this week to 351, compared to 462 rigs one year ago. The second-largest basin, the Eagle Ford, lost six rigs this week for a total of 57 rigs compared to 78 a year ago.
Monday has set up to be a pivotal day for the global oil market. An early indicator in the prospect of success for a reunited OPEC+ alliance will come Sunday when Saudi Aramco issues its Official Selling Price for May. A low price would suggest Riyadh would continue to persue its war for market share.
Liubov Georges can be reached at firstname.lastname@example.org
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