Oil futures are little changed even after major oil producers reached a deal for a record 10 million barrels per day output cut, with analysts saying the agreement was insufficient to head off oversupply as the coronavirus pandemic hammers demand.
Total global oil supply cuts could come to 20 million barrels per day, around 20 per cent of global supply, Kuwait’s oil minister said.
After four days of wrangling, OPEC, Russia and other oil-producing nations, a group known as OPEC+, agreed on Sunday to cut output by a record amount of 9.7 million barrels per day, representing around 10 per cent of global supply to support oil prices amid the pandemic, sources said.
“What this deal does is enable the global oil industry and the national economies and other industries that depend upon it to avoid a very deep crisis,” said IHS Markit Vice Chairman Daniel Yergin. “This restrains the build-up of inventories, which will reduce the pressure on prices when normality returns – whenever that is.”
Morgan Stanley on Sunday raised its second-quarter oil price forecasts to $US25 a barrel for Brent and $US22.50 a barrel for WTI. The bank said, however, that the 9.7 mln-bpd cut would not prevent sharp inventory buildups in the coming months, keeping prices under pressure.
Brent crude futures rose 21 cents to $US31.69 a barrel by 2309 GMT. U.S. West Texas Intermediate (WTI) crude futures rose 21 cents to $US22.97 a barrel.
Leaders of the world’s top three oil producers, Russian President Vladimir Putin, US President Donald Trump and Saudi Arabia’s King Salman, all supported the OPEC+ deal to cut global crude output, the Kremlin said on Sunday.
Trump praised the deal, saying it would save jobs in the US energy industry.
Saudi Arabia, Kuwait and the UAE volunteered to make cuts even deeper than those agreed, which would effectively bring the OPEC+ supply down by 12.5 million bpd from current supply levels, the Saudi energy minister said.
Worldwide fuel consumption is down roughly 30 per cent, due to the COVID-19 pandemic caused by the novel coronavirus that has killed more than 100,000 people worldwide and kept businesses and governments on lockdown.
On Thursday, OPEC+ outlined plans to cut output by more than a fifth, or by 10 million barrels per day and the group met on Sunday to hammer out a deal.
OPEC+ has also said it wanted producers outside the group, such as the US, Canada, Brazil and Norway, to cut a further 5 per cent or 5 million bpd.
Canada and Norway signaled a willingness to cut. The US, where antitrust legislation makes it hard to act in tandem with cartels such as OPEC, has said its output would fall by as much as 2 million bpd by itself this year because of low prices.
“We’re going to see a significant drop in production anyway from producers who can’t make money producing,” said Phil Flynn, an analyst at Price Futures group.