(C) Reuters.

By Barani Krishnan

Investing.com – It must be quite humbling for the world’s oil titans to come out a week after the largest production cut in history to say they’ll do more.

But that’s what the crude market has come to these days. Like they often say in life and business: “It is what it is.”

As oil was readying to end another tumultuous week, Riyadh and Moscow signaled readiness for more cuts, with WTI finding itself back in a spot the U.S. crude benchmark had gotten quite familiar with lately: the under $20-per-barrel level.

Saudi Arabia and Russia will “continue to closely monitor the oil market and are prepared to take further measures jointly with OPEC+ and other producers if these are deemed necessary,” Abdulaziz bin Salman and Alexander Novak, energy ministers for the two countries, said in a statement after phone call between them.

Just a week ago, oil producers within the G-20 and OPEC – an alliance now known as GLOPEC – overcame a stubborn Mexico to piece together a near 10-million-barrel-per-day cut deal that they hastily announced hours before Asian markets opened. In similar manner, crude markets held up for a few hours in Monday’s trade before turning south.

And since then, they’ve barely turned around, with the exception of Brent, which had three positive sessions but still found itself with double-digit losses by the end of the week.

Of course, anyone who had followed the market over the past few weeks could have told the two energy ministers to just put the phone down and get down to cutting and cutting real hard to send the oil bears into running helter-skelter.

What else could bin Salman and Novak have thought when the original cuts they were offering the market – a number GLOPEC officially pegged at 9.7-million bpd despite protestations by Donald Trump that it was closer to 20 million – wouldn’t have filled half of the 30-million-bpd hole blown into demand by Covid-19.

Yet, anyone who has been following the market diligently will also know that neither the Saudis nor the Russians have any intent of following through with tens of millions of barrels of additional cuts when their real aim is to shore up market share. Similarly, the U.S. president knows he has no power to tell American drillers to turn off their spigots; if the industry can somehow self-regulate, then all the better.

The Saudis’ true motivation about production was clearly visible earlier this week when their state-owned Aramco (SE:2222) offered generous credit terms to refinery customers and deep discounts to other Asian buyers. Those were calculated moves aimed at bolstering market share, rather than balancing supply.

But that doesn’t mean deeper production cuts won’t be coming.

Weekly U.S. oil rig count published by industry firm Baker Hughes on Friday showed a drop of 66 rigs this week and 245 over the past five weeks. The rig plunge was a direct reflection of production cuts undertaken by U.S. oil drillers due to WTI’s free-fall.

That’s not all. U.S. storage facilities are quickly filling up too, with the Cushing, Oklahoma hub for WTI reaching 71% of working capacity as of April 10, up 15% over the past two weeks. At the rate of current builds – nearly 50 million barrels of U.S. crude in the last three weeks – analysts say Cushing storage could peak by mid-May, or the first few weeks of June, at the latest.

Storage at sea is growing too, with global oil tankers estimated to hold a record high of 160 million barrels, double from just two weeks ago.

Still, there’s resistance among some U.S. drillers to deepen cuts.

Pioneer Resources and Parsley Energy petitioned the Texas Railroad Commission, which regulates output in the largest U.S. oil producing state, to force a mandatory 20% output cut within its jurisdiction.

“The industry will be wiped out if cuts are not introduced,” Pioneer CEO Scott Sheffield. “We will see oil at $3 – $10 bbl in the second half of the year.”

But others like Chevron (NYSE:CVX) and Marathon Oil (NYSE:MRO) stood in his way.

“I would argue that among global producers, the U.S. has acted first and has acted quite strongly,” Marathon CEO Lee Tillman said.

“The bottom line is we’re already cutting and cutting deeply,” he said, adding that shale oil drillers in Texas were on track to cut capital expenditure – corporate speak for oil search-and-drilling-related spending – by as much as 50% this year.

On the global front, oil companies have cut capex by 26%, or $60.5 billion, a Reuters factbox showed.

Yet, on the U.S. side, drillers may have become victims of their own success – i.e. drilling efficiency.

Total U.S. crude production is about 1.7% above where it stood a year ago, with output still estimated at 12.3 million bpd last week, versus the record high of 13.1 million bpd in March.

“The U.S. upstream sector is currently deploying 438 or 72.8% fewer drilling rigs but are producing 3,425,000 bpd (38.6 percent) more oil than they were producing in October of 2014,” said Dominick Chirichella, director of risk and trading at the Energy Management Institute in New York.

On the precious metals front, gold fell back beneath its $1,700 comfort zone as Wall Street’s “soon-to-reopen” mantra about U.S. businesses coming back from the Covid-19 crossed over Friday’s gold trading, sparking pre-weekend profit-taking.

Analysts were, however, optimistic of gold’s return toward a path that will see it testing the $1.800 highs and, possibly, record highs at above $1,900.

“Risk appetite is soaring, but it might be overdone as permanent damage to the economy will see a battered US consumer,” said Ed Moya, analyst at online trading platform OANDA.

Energy Review

White House guidelines on reopening the U.S. economy and talk on what else oil titans Saudi Arabia and Russia could do for production cuts didn’t cut it for an U.S. oil market practically swimming in crude.

The front-month contract in West Texas Intermediate, the New York-traded benchmark for U.S. oil, plunged to as low as $17.31 per barrel Friday – marking a bottom since 2001 – as it headed for delivery. The contract settled at $18.27, down 8% on the day and 19.7% on the week.

June WTI, next in line to be the spot contract, settled at $25.03 – a near $7 disparity due to the woeful prompt demand for spot crude.

Despite a near 10-million-barrels-per day production cut agreed on Sunday by OPEC and other world oil producers, crude prices have continued to sink on concerns that actual loss of demand to the Covid-19 pandemic could be as high as 30 million bpd.

“May crude oil is up for delivery as OPEC plus cuts have yet to start, and production drops are not coming fast enough with a glut of oil,” said Phil Flynn, analyst at the Price Futures Group in Chicago. “However, if you look down the curve, prices are looking better.”

June WTI could also get a bump-up in the coming week after the oil rig count published by industry firm Baker Hughes showed a drop of 66 rigs this and 245 over the past five weeks. The rig plunge indicated production cuts undertaken by U.S. oil drillers due to WTI’s free-fall.

Brent, the London-traded global benchmark for crude, performed better than US crude on Friday, though only relatively. Brent’s front-month, which has already moved to June, settled at $28.08 per barrel, up almost 1 percent on the day. For the week, however, it was down 10.8%.

The White House unveiled late on Thursday a step-by-step health guide that governors of the 50 U.S. states could use in reopening businesses locked down for four week now in an attempt to control the Covid-19 outbreak that has infected more than 670,000 Americans and killed nearly 34,000 of them.

Energy Calendar Ahead

Monday, April 20

Private Genscape data on Cushing oil inventory estimates

Tuesday, April 21

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, April 22

EIA weekly report on oil stockpiles

Thursday, April 23

EIA weekly natural gas report

Friday, April 24

{{ecl-1652||Baker Hughes weekly rig count.

Precious Metals Review

Gold futures for June delivery on New York’s COMEX settled down $32.90, or almost 2%, at $1,698.80 per ounce. For the week, June gold was down more than $62, or 3.5%.

Just on Tuesday, COMEX’s front-month contract hit a seven-year high of $1,788.75, after a gain of $165, or 10%, since end-March.

Spot gold, which tracks live trades in bullion, settled down $34.88, or 2%, at $1,683.78. For the week, bullion lost 0.3%.

Wall Street’s Dow index headed for a gain of 2.5% in Friday’s trade boosted by optimism over a potential coronavirus treatment and hopes the U.S. economy could reopen fairly soon.

The White House unveiled late on Thursday guidelines that governors of the 50 U.S. states could use in reopening businesses locked down for four weeks now in an attempt to control the Covid-19 outbreak that has infected more than 670,000 Americans and killed nearly 34,000 of them.

Analysts were, however, optimistic that gold will reclaim its $1,700 berth.

“Gold will remain supported by the boatload of monetary and fiscal stimulus that will be in place for the foreseeable future,” said Ed Moya, analyst at online trading platform OANDA. “Record high calls for gold in dollar-denominated terms are slowly becoming the base case scenario, so we could see volatility ramp up over the coming weeks.”

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