OPEC and its allies, known as OPEC+, as well as other major oil producers, aim to cut the world’s supply by 20%, nearly 20 million bpd. However, the deal only gave a minimal impact on prices. Brent crude futures rose 1.5% on Monday, while US WTI crude settled lower than the previous day. This underscores the struggle by oil producers to restore the market balance.
However, according to Saudi energy minister Prince Abdulaziz bin Salman, prices have been rallied before the meeting driven by the anticipation of the cuts. Brent has rebounded by about 48% since falling under $22/barrel two weeks ago. He also noted that total global cuts would amount to around 19.5 million bpd. OPEC+ will contribute to 9.7 million bpd cuts. It will also involve cuts by non-member producers and purchases by some key oil buyers.
He said that G20 countries had vowed to reduce output by about 3.7 million bpd, while purchases are expected to reach roughly 200 million barrels in the coming months. The proposed output reduction is four times bigger than the previous record in 2008. However, the demand destruction caused by the coronavirus pandemic is even bigger at 30 million bpd, according to some estimates.
Energy Aspects analyst Virendra Chauhan said the cuts might prevent prices from collapsing further, but they were unlikely to boost prices, considering the current inventory builds. According to Energy analysts at FGE, crude stockpiles in developed countries will continue increasing albeit at a slower rate, thanks to the cuts. Shipping tracker Kpler noted that global onshore crude storage was near 83% of capacity.
China, the world’s largest oil buyer, sees its economic activities recovering after the outbreak, with refiners aiming to increase runs by 10% in April. However, most of the world’s major economies are still battling the virus, and they reportedly have their strategic petroleum reserve almost full.
