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Oil prices rise as major producers prepare to meet

Oil refinery

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Oil prices have risen ahead of a meeting of major global oil producers on expectations that they will agree production cuts to counter the slump in demand caused by coronavirus lockdowns.

Brent crude rose 3% to $33.95 a barrel on hopes that up to 15 million barrels a day will be cut from global supply.

Opec+, made up of Opec producers and allies including Russia, is due to hold talks via video conference on Thursday.

The failure by Opec+ to agree cuts in March triggered a slump in oil prices.

In the wake of the March meeting, Saudi Arabia and Russia moved to boost production in order to retain market share amid falling global demand.

That, together with the collapse in demand for oil amid the coronavirus pandemic, help to push oil prices to 18-year lows by the end of March.

Prices have recovered some ground since then. Last week, prices jumped 20% after US President Donald Trump said he expected Saudi Arabia and Russia to end their feud.

“We’re waiting with bated breath,” Lachlan Shaw, head of commodity research at National Australia Bank, told Reuters.

“I think there’ll be a deal, which will bring a bit of cheer in the short run. Then everyone’s attention will refocus on the fundamentals. The fundamentals are appalling,” he said.

India’s ICICI Securities analysts Vidyadhar Ginde and Mohit Mehra said in a research note that the key to an agreement this time around was which the production level timeframe is used as a base for the cuts.

Saudi Arabia wants the production level as of April 2020, but other producers, including Russia, want an average of the first quarter of this year, which would be lower.

“Taking the April 2020 production as the base would mean no real cut from the first quarter 2020 level,” the analysts said. “It would also mean rewarding Saudi Arabia for sharply boosting output at a time when global demand was plunging… and it could be a deal breaker.”

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