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The logo of the Organisation of the Petroleum Exporting Countries (OPEC). Producers hope for an output cut agreement to lift prices, which crumbled last month amid the coronavirus pandemic and a price war between key producers Saudi Arabia and Russia. Image Credit: REUTERS

Dubai: Oil was trading flat on Wednesday following an early morning jump to $32 per barrel for Brent crude in anticipation of the much-anticipated meeting on Thursday between Opec members and Russian-led group of non-Opec members.

Producers hope for an output cut agreement to lift prices, which crumbled last month amid the coronavirus pandemic and a price war between key producers Saudi Arabia and Russia. This in turn led to an unprecedented glut in supply and a decline of more than 40 per cent in prices.

As more countries impose strict virus containment measures, which halted most sectors of the economy, demand for oil is at record low. Thursday’s video conference meeting was arranged last week in order to bridge the gap between Saudi Arabia and Russia and restore market balance.

However, an industry source, who spoke to Gulf News on the condition of anonymity, said the meeting might not be as conclusive as many hope for because the United States producers are unlikely to join any deal. “I suspect the Russians will not agree [to an output cut] until there is real evidence of a US production decrease,” the source said.

The US told Opec+, Opec members and Russia on Tuesday that its production will decline naturally due to market forces- low demand, low prices and the subsequent high production cost that may lead to a halt in some shale oil wells.

“Perhaps this will be sufficient for Russia to agree on a cut. However, if they agree to a cut then the price will improve and this means US production will go up again,” the source explained, saying nevertheless, there is a slim chance there will be a deal on Thursday.

Oil prices are expected to recover some of its losses if a deal is announced but will not go as high as they were a month ago, the source said. “The spot market is swamped with oil, and buyers demand further price cuts for May- June deliveries from the major suppliers,” which will cap any potential price increase. “The market is currently oversupplied by around 25 million barrels per day — other projections go as high as 35 million. If Opec+ agree to cut less than this amount, the oversupply will remain, storage will continue to fill up, and consequently the price will continue to trend down.”

So far, oil prices have been volatile in the past few days in anticipation of the meeting.