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A flame burning natural gas is seen at an oil refinery. (Reuters )
A flame burning natural gas is seen at an oil refinery. (Reuters )

Oil market still under pressure despite record futures surge

While oil futures got a record boost from President Donald Trump’s claim that Saudi Arabia and Russia would make deep supply cuts, the market for physical barrels of crude still strains under a massive glut

While oil futures got a record boost from President Donald Trump’s claim that Saudi Arabia and Russia would make deep supply cuts, the market for physical barrels of crude still strains under a massive glut.

West Texas Intermediate crude rallied as much as 35% after President Trump tweeted that the world’s largest producers would be cutting as much as 15 million barrels, and ended with the biggest intraday gain in its history. Texas Railroad Commission member Ryan Sitton, in a rare move for the state’s oil regulator, later tweeted that he spoke with Russia’s energy minister and discussed a 10 million barrel-a-day global output cut and would talk to the Saudi oil minister soon.

While a supply deal -- if one is concluded -- would help take some oil off the market, the biggest hurdle facing oil producers and refiners is an unprecedented loss of demand. U.S. refiners last week used about 3 million barrels a day less crude than they did in August 2018, as fuel makers reduce runs to cope with plunging gasoline and jet fuel consumption. Trading house Trafigura Group increased its estimate for the global contraction from the spread of COVID-19 to about 35 million barrels a day.

"We do not yet know where this diplomacy may lead, but we expect physical market developments to continue to move faster than policymakers," said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. “Indeed, the reality is that the physical market will force large-scale shutdowns, likely much larger than 10 million barrels a day, perhaps within a few weeks."

Discounts widened for some grades of physically delivered oil across the U.S. and Canada, muting the effect of the jump in futures. Heavy Louisiana Sweet crude lost $1.75 a barrel relative to WTI to a record $10.50 discount. The discounts first began to grow in early trading as the gap between WTI and global benchmark Brent narrowed, making U.S. oil less attractive to foreign buyers.

Some companies unable to sell or find tanks for their oil are even seeking to use rail cars to store excess crude, while the Energy Department announced Thursday an offer to lease 30 million barrels of storage in the U.S. Strategic Petroleum Reserve.

Bakken crude in North Dakota was just above $10 a barrel, less that half the value of futures, and Canadian Syncrude and Western Canada Select also lagged behind futures, reflecting the malaise in the Midwest fuel market. Wholesale gasoline in Chicago was worth a little more than 24 cents a gallon Thursday, even after gasoline futures zoomed higher along with crude.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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