By Scott DiSavino
NEW YORK (Reuters) - Oil prices gained nearly 4% on Thursday, but pulled back from an earlier surge as investors waited for details on negotiations between top producers hammering out an agreement for record supply cuts in response to the global fuel demand collapse due to the coronavirus pandemic.
A worldwide lockdown to slow the spread of the coronavirus pandemic has cut fuel demand by roughly 30%, and contributed to a crash in prices that took major benchmarks down by more than two-thirds before recovering in recent days in anticipation of action from oil producers.
Brent futures rose $1.30 cents, or 3.9%, to $34.13 a barrel by 12:38 a.m. EDT (1638 GMT), while U.S. West Texas Intermediate (WTI) crude rose 95 cents, or 3.8%, to $26.03.
Earlier on Thursday, prices jumped over 10% as the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia - a group known as OPEC+ - appeared to agree to cut output by anywhere from 10 million to 20 million barrels per day (bpd), equivalent to 10% to 20% of global supplies, OPEC and Russian sources said. Details remained unclear, however.
Even with such a massive reduction in output, analysts still expect storage to fill up worldwide, forcing producers to cut back drilling activities. U.S. gasoline demand has fallen by nearly half since mid-March alone, and other nations have reported similar declines.
"It sounds like there may be cuts of 10-20 million barrels a day of production. This may help, but is insufficient to clear the oil market, considering the demand cessation due to world government actions on Covid-19," said Josh Young, chief investment officer at Bison Interests.
A cut of 20 million bpd would be by far the biggest output cut ever agreed by OPEC, but Russia has insisted it will only reduce output if the United States joins the deal. Other large producers like Canada and Brazil have already voiced support for cuts, though those nations are cutting output now due to market forces.
The United States has not said it will mandate output reductions. Instead, it has noted that market forces are already causing producers to pull back, as it expects its output to fall by nearly 2 million bpd by next year.
Analysts, meanwhile, said that even if such record cuts are agreed, they will not be enough.
"Ultimately, the size of the demand shock is simply too large for a coordinated supply cut," analysts at Goldman Sachs said on Thursday.
Following the OPEC+ meeting, energy ministers from the Group of 20 major economies are set to meet on Friday.
The last OPEC meeting in early March ended acrimoniously, with Russia and Saudi Arabia unable to come to an agreement to curb output as the virus spread, adding to the slump in prices.
A source briefed on Saudi Arabia's oil policy said it is ready to cut up to 4 million bpd of its production but only from its record output levels of 12.3 million bpd achieved in April.
Russia has said it wants output to be cut from the January-March levels before Saudi production jumped.
Oil importing countries, meanwhile, may announce crude oil purchases, International Energy Agency Executive Director Fatih Birol told al-Arabiya TV.
(Additional reporting by Liz Hampton in Denver, Shadia Nasralla in London, Sonali Paul in Melbourne and Seng Li Peng in Singapore; Editing by Marguerita Choy and Raissa Kasolowsky)