Russian Reluctance To Combat Coronavirus Impact Causes Crude Losses

Some analysts think OPEC cuts won't be enough to prop up the market: File Image/PixaBay

Once again demonstrating that rebounds during the coronavirus panic are short-lived, crude prices on Wednesday reversed earlier gains as it became clear that members of the Organization of the Petroleum Exporting Countries (OPEC) were struggling to bring Russia on board for deeper output cuts that would presumably offset a drop in demand.

Despite cartel insiders claiming over the past few weeks that such an agreement was widely supported, as of Wednesday a panel of several ministers had not yet struck a deal to cut at least 1 million barrels per day (bpd) extra from the market.

Bijan Zanganeh, oil minister for Iran, worried that "Right now, the supply in the market is greater than demand, [and] it's necessary for OPEC and non-OPEC to make all their efforts to balance the market."

He added that Russia will resist any production cuts "until the last moment."

Accordingly, the observations coming from the analytical community ranged from concerned to bleak.

Goldman Sachs stated that while an output cut  "will help normalize oil demand and inventories later this year, they can't prevent an already started large oil inventory accumulation."

Andrew Lipow, president of Lipow Oil Associates, said, "I do not see oil demand recovering to pre-virus levels for several months, as additional outbreaks in Europe and the U.S. are going to cause travel and meeting disruptions and demand destruction."

Capping the gloom was Liam Denning, commodities columnist for Bloomberg, who on Wednesday wrote that OPEC's ability to influence the market is limited: "Just as the Fed is shooting bullets from a depleted magazine, so OPEC+ is discussing further cuts barely three months after the last set were unveiled at a fractious meeting.

"We may get another big cut at the end of this week; all along, though, these cuts have been a signal of fundamental weakness, [and] like the Fed, OPEC+ may be shocked at how little awe it inspires."

Some good news was supplied by the U.S. Energy Information Administration, which reported that crude stocks grew by 785,000 barrels, which was less than expected; and gasoline and diesel stocks both fell by more than 4 million barrels.

Plus, exports surged to nearly 4.2 million bpd, and this caused Scott Shelton, energy salesperson from United ICAP, to remark, "It's not that bad out there, at least for now."

But traders on Wednesday didn't share the sentiment: Brent settled down 73 cents to $51.13 per barrel after reaching a high of $53.03; West Texas Intermediate ended down 40 cents to $46.78 per barrel.