What’s happening: Crude oil prices dropped on Tuesday ahead of a virtual meeting of the major oil producers later this week.
What happened: After rising earlier in the session, WTI crude oil gave up all gains and settled lower following a US government report lowered the outlook for oil prices and domestic production for this year and the next.
Meanwhile, Saudi Arabia and Russia continued fuelling their war of words, despite both economies feeling the pain of tumbling oil prices.
Why it matters: The US EIA (Energy Information Administration) lowered its 2020 outlook for both WTI and Brent crude oil prices. The EIA slashed the forecast by around 23%, projecting WTI oil price at $29.34 per barrel and Brent crude prices to $33.04 a barrel.
The market seems to be pricing in a low probability of a ceasefire between Saudi Arabia and Russia. Even as President Donald Trump assured markets of an agreement being reached between the US, Russia and Saudi Arabia to reduce oil production, hopes of this happening are dwindling.
In fact, the OPEC+ (Organization of the Petroleum Exporting Countries and its allies) turned the spotlight on the US, asking the country to lower their outputs. However, the US Energy Department said the country’s production had already been cut in response to lower demand.
The OPEC+ group is scheduled for a virtual meeting on Thursday, in an attempt to put an end to the price war that is flooding the already oversupplied oil market at a time when major economies around the world are shutting down their operations to control the COVID-19 pandemic.
As demand for oil declines, inventories keep building. Late Tuesday, the API (American Petroleum Institute) reported a rise of 11.9 million barrels in US crude supplies for the week ended April 3.
WTI crude for May delivery tumbled 9.4% to settle at $23.63 per barrel on the NYMEX (New York Mercantile Exchange), while June delivery of Brent crude declined 3.6% to end at $31.87 a barrel. WTI crude was trading higher by 5.5% at $24.92 in Asian session.
What to watch: Markets will be looking for some positive news regarding production cuts at the OPEC+ meeting. Investors are awaiting EIA’s report scheduled for release today. The EIA is expected to report a gain of 8.4 million barrels in crude stockpiles for the week ended April 3. Gasoline stocks are also likely to rise by 5.4 million barrels, while distillate inventories are projected to fall by 500,000 barrels.