Oil edges higher as US expects sharp drop in shale output

Tokyo — Oil prices rose more than 1% on Tuesday after the main US energy forecasting agency predicted shale output in the world’s biggest crude producer would fall by the most on record in April, adding to cuts from other producers.

Brent futures rose 53c, or 1.7%, to $32.27 a barrel by 4.20am GMT after settling 0.8% higher on Monday. US West Texas Intermediate (WTI) crude was up 32c, or 1.4%, at $22.73, having dropped 1.5% the previous session.

The Organisation of the Petroleum Exporting Countries (Opec), along with Russia and other producing countries — known as Opec+ — agreed over Easter to cut output by 9.7-million barrels a day in May and June, equal to about 10% of global supply before the viral outbreak.

The US, the world’s biggest producer, is reducing output as well, and other countries are taking the estimated cut in production to about 19.5-million barrels a day.

But analysts, oil industry executives and others say no matter how the numbers are massaged, the reduction will not be enough to match a contraction of about a third of global oil demand due to the virus outbreak.

Oil prices are still down by over 50% so far this year.

“We are at the point right now where the demand destruction is so far beyond anything they are going to do in any co-ordinated cut,” said Greg Priddy, director global energy and Middle East at Stratfor in Houston.

Inventories, where available, are expected to fill up fast even as some among the Group of 20 (G-20) countries agreed to buy oil for their national reserves.

“Russia doesn’t have a lot of storage capacity and the capacity in Europe is going to be full,” Priddy said.

Still, US production is falling in tandem with a drop in prices and there are signs the coronavirus outbreak may have peaked in some areas of the world.

Already there are signs in China, where the virus started and is now largely under control, that demand has returned with data showing that crude oil imports rose 12% in March from a year earlier.