OPEC and allies led by Russia, the dubbed OPEC+ group, said they had an unprecedented deal with fellow oil nations, including the United States, to curb global oil supply by more than 20 million bpd, or 20% of global supply.
The noted cuts will be conducted over the coming years, full breakdown; the 9.7 million barrels per day cut will begin on May 1, and will extend through the end of June.The cuts will then taper to 7.7 million barrels per day from July through the end of 2020, and 5.8 million barrels per day from Jan. 2021 through April 2022. The 23-nation group will be meeting again on June 10 to determine if further action is going to be needed.
Oil was provided with a relief rally at the open, however, somewhat limited and has now given up its early gains. At the time of writing WTI crude oil can be seen trading in negative territory. As noted in the prior blog, risks remain tilted to the downside. It's important to note the cuts still fall short of completely offsetting an estimated 30 million bpd drop in worldwide fuel consumption caused by the COVID-19 pandemic.
Comments from Goldman Sachs
Goldman Sachs said that oil prices will continue to fall in the coming weeks, they noted that a “historic yet insufficient” deal by major oil producers to cut output is unlikely to offset a coronavirus-led demand rout.
In terms of forecasts, they see downside risks to its short-term oil price projection of around $20 per barrel for Brent. The bank in its research note to clients said:
Ultimately, this simply reflects that no voluntary cuts could be large enough to offset the 19 million bpd average April-May demand loss due to the coronavirus.
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