By Julia Payne
LONDON (Reuters) - U.S. President Donald Trump's confidence he can get a deal to limit a global oil glut has driven world crude futures higher.
But he cannot talk up the underlying physical market that shows the full extent of the demand destruction following the coronavirus outbreak.
The Brent crude oil benchmark, used to price more than half the world's physical crude cargoes, has dropped to a record discount to Brent oil futures of about a $10 per barrel.
Whatever oil producers decide on supply, demand destruction caused by lockdowns to contain the novel coronavirus is so significant the world will soon run out of storage space for millions of barrels of surplus oil.
Estimates of oil demand destruction range between 20 million and 30 million barrels per day (bpd), or roughly a third of global daily oil demand.
Physical dated Brent was priced at $15 a barrel on Wednesday after the Brent futures contract, a financial instrument used to price oil for future delivery, settled at $24.74 a barrel, Refinitiv data showed.
Different commodity pricing agencies establish the level of dated Brent, but the industry typically uses the one set by S&P Global Platts.
Physical crude cargoes trade at premiums or discounts to dated Brent. With the lockdowns around the world killing refining demand, these differentials to the benchmark have crashed to unprecedented levels.
Dated Brent differential https://fingfx.thomsonreuters.com/gfx/ce/azgporomvdx/dated%20brent%20graph.PNG
"After having traded very close to the lower end of the range over the last few days, crude futures started to move higher after U.S. President Trump expressed his confidence that Saudi Arabia and Russia will start working together on supply again soon," JBC consultancy said in an oil note.
"This drove the spread between ICE (oil futures) and Dated Brent to close to $10 per barrel, meaning the divide between the current physical reality and the hope for a better future is at a record high."
While demand has disappeared, supplies are swelling after the collapse of a supply pact between the Organization of the Petroleum Countries and allied producers.
Oil traders across the world have been scrambling to sell their cargoes as far in advance as possible as rapidly vanishing demand drives physical crude prices to multi-decade lows.
Trafigura estimated global refinery run cuts at 12 to 13 million bpd.
This week, Kazakh CPC Blend crude oil, for example, traded at a record $10 discount to dated Brent, meaning that a cargo sold at that differential on Wednesday would have only fetched about $5 a barrel.
(Reporting by Julia Payne; editing by Jane Merriman and Barbara Lewis)