The oil market remains in limbo today, unable to find a direction which comes as a surprise to the market after one of the biggest deals in history was agreed to aimed at stopping the carnage currently surrounding the oil price. Opec and its allies have agreed to remove 10m barrels a day from the market, with Saudi Arabia and Russia together cutting the lions share while the Other Opec+ producers have agreed to remove an additional 5m barrels a day with the exception of Mexico who’s energy minister Rocio Nahle Garcia tweeted that her country had suggested a cut of 100,000 barrels. On top of these cuts, the US, Canada as well as other producers have joined the party and remove an additional 5m barrels a day, which should be clarified when G20 energy ministers hold an emergency meeting on Friday.
The agreement will now be known as the biggest supply deal in history and may go some way to stabilizing the oil and prevent the loss of thousands of jobs around the world, and especially those jobs connected with the oil sector. “The proposed 10m b/d cut by Opec+ for May and June will keep the world from physically testing the limits of storage capacity and save prices from falling into a deep abyss,” wrote analysts at Rystad Energy, a consultancy.
“But it will still not restore the desired market balance.” he added
Not everybody believes that the production cuts will help the oil market long term and although we may see a relief rally, this is expected to be short lived and the price is bound to re-test the recent lows as the world still grapples with the effects of the coronavirus which will continue to hinder demand.
“While any potential cuts from Thursday’s OPEC+ meeting would be positive, we do not expect a deal large enough to ‘fix’ near-term oversupply given the sheer magnitude of lost demand from the Covid-19 pandemic,” said analysts from Morgan Stanley
“We continue to see further oil production shut-ins and curtailments as likely with or without coordinated supply cuts.” They added.