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Oil prices fell on Friday, coming off their biggest one-day gains in the previous session, reflecting market scepticism about a deal US President Donald Trump said he had brokered between Saudi Arabia and Russia to cut output.
Brent crude futures fell 3.2 per cent, or 97 cents, to $28.97 per barrel as of 0636 GMT, after having soared 21 per cent on Thursday.
US West Texas Intermediate (WTI) crude futures fell 4.1 per cent, or $1.04, to $24.28 a barrel, after having surged 24.7 per cent on Thursday.
Analysts said it was hard to see a deal to call off the Saudi-Russian price war going ahead without the participation of other major producers, or whether any such deal could come quickly enough and be large enough to balance the market in the face of a deep economic recession caused by the coronavirus pandemic.
Trump said the two countries could cut output by 10 to 15 million barrels per day (bpd) - an unprecedented amount representing 10 per cent to 15 per cent of global supply. Trump said he had made no offer to cut US output.
Saudi Arabia called on Thursday for an emergency meeting of OPEC and non-OPEC oil producers, saying it aimed to reach a fair agreement to stabilise oil markets.
UBS analysts said they were sceptical that producers can credibly commit to large cuts and expected oil prices to come under pressure again.
“Even if a deal was to be reached, we believe the coordination required would lead to an only delayed and gradual implementation,” Goldman Sachs analysts said.
Both Riyadh and Moscow will be looking for the participation of other countries, in particular the US, analysts said.
“It is difficult to see the current OPEC+ group cutting output by at least 10 million bpd - the scale of the reduction would be just too much for the group to handle,” ING said in a research note.
Saudi could drop production down to around 8.5 million bpd but would likely be reluctant to go below that level because of the desire to maintain associated gas production, while Russia will likely look for some measure of sanctions relief from Washington, said Helima Croft, global head of commodity strategy at RBC Capital Markets.
Washington will not ask US domestic oil companies for a coordinated cut in production and is still awaiting the details of planned cuts in Saudi Arabia and Russia, a senior administration official told Reuters.
The Canadian province of Alberta, home to the world's third-largest oil reserves, is open to joining any potential global pact to reduce a glut of crude, Premier Jason Kenney told Reuters on Thursday.
With the coronavirus pandemic worsening, Citi analysts forecast a decline in global oil demand in the second quarter of 18 per cent-20 per cent, or 18-20 million bpd, which in turn should see refinery runs collapse by over 2 million barrels per day, triggering an unprecedented growth in inventory of some 1 billion barrels over two months.
The proposed cut would at least ease some pressure on a global shortage of oil storage, analysts said.
“Running out of storage capacity would result in a complete collapse of the oil market, which is crucial for the world economy now suffering from the greatest economic shock since WW1,” Rystad's head of analysis, Per Magnus Nysveen said.
Even with Thursday's big percentage gains, prices have still slumped nearly 60 per cent this year.
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