OPEC+ cuts to crude ‘won’t be enough to bring sustainable, restorative support to prices,’ say experts

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Even as a deal between OPEC and major oil producers to cut output looked to be in jeopardy on Friday, experts are deeming the proposals insufficient to mitigate a demand shock caused by the coronavirus pandemic and soak up the glut of oil swirling in storage tankers.

S&P Global Platts Analytics said that the nation’s major oil producers, which are set to hold a second virtual meeting to cement price-stabilizing output reductions, needs to curtail crude production by 15-20 million barrels a day over the coming months.

“The reported OPEC+ production cut of 10 million barrels a day, if ratified, just isn’t enough to plug the 15- to 20-million b/d near-term imbalance in the marketplace and avoid tank tops in May,” S&P Global wrote in a recent research note.

The report came as Mexico balked at implementing its share of the cuts of 400,000 barrels a day, threatening the overall agreement between the Organization of the Petroleum Exporting Countries and other major nations, including Russia, a group collectively known as OPEC+.

Oil markets were closed in observance of Good Friday but a group of 20 major oil-rich nations, including the U.S., were convening to hash over the deal after a virtual meeting on Thursday. That gathering concluded with OPEC+, agreeing to cut production by 10 million barrels a day in May and June, the Wall Street Journal reported.

Saudi Arabia and Russia will each limit their production levels to 8.5 million barrels a day, with all members agreeing to cut supply by 23%, Bloomberg reported, citing comments from one delegate.

However, a global pact for reductions cannot be achieved without Mexico’s participation.

On Thursday, West Texas Intermediate crude for May delivery
CLK20,
-7.57%

lost $2.33, or 9.3%, to settle at $22.76 a barrel on the New York Mercantile Exchange after trading as high as $28.36.

June Brent crude
BRNM20,
+1.74%

lost $1.36, or 4.1%, at $31.48 a barrel a barrel on ICE Futures Europe following an intraday peak of $36.40.

Since early March, oil prices have fallen to their lowest level in nearly 20 years as the coronavirus epidemic has spread around the world with much of the world now staying home. WTI and Brent both fell more than 50% in March for their worst month on record. The first quarter was also the worst in history, with WTI shedding 66%, while Brent fell 65%.

Still, S&P Global Platts Analytics, global head of analytics, Chris Midgley said, “The current proposed 10 million b/d may be too little too late as it will have limited impact on April production and only if sustained from May for the balance of the year might we avoid hitting tank tops.”

S&P Global expects global oil demand to contract by 4.5 million b/d in 2020, down from a projected growth of 1.3 million b/d at the start of the year. The research firm said “demand destruction is expected to peak” in the near-term at around 20 million barrels a day due to the closures and global recession wrought by the COVID-19 pandemic.

“A 10 million barrel a day deal is “far lower than what the market needs at the moment,” said Bjørnar Tonhaugen, head of oil markets at Rystad Energy, in emailed commentary.

Last week, President Donald Trump tweeted that he expects Saudi Arabia and Russia to cut oil production by 10 million barrels a day to as much as 15 million barrels a day.

An OPEC+ gathering in early March broke down spectacularly after OPEC’s most influential member, Saudi Arabia, and non-member Russia failed to strike an accord on cuts, leading to an internecine clash that accelerated a crushing move lower in the price of U.S. and international-grade oil.





Source : MTV