NEW YORK – Oil prices tumbled Thursday, doubting that an agreement between OPEC and its allies for a record reduction in oil supply would be enough to offset the collapse in global fuel demand caused by the pandemic of coronavirus.
The Organization of the Petroleum Exporting Countries and its allies, including Russia, a group known as OPEC +, has agreed to cut production by 10 million barrels a day starting in May, the group said in a statement.
Before the coronavirus epidemic reached transport and global economic activity, 10 million bpd represented about 10% of the world’s supply.
OPEC + expects other producers, including the United States, to further reduce 5 million bpd. But Washington did not offer to participate, and even if it did, the combined reduction in supply would account for about half of the 30% global drop in demand.
Brent futures fell $ 1.36, or 4.1%, to $ 31.48 per barrel, while US crude West Texas Intermediate (WTI) fell 2.33 $, or 9.3%, to stand at $ 22.76.
“The collapse in oil prices is the result of the reality that if OPEC cuts as planned, there is simply too much crude in physical space for sale, with too few pipelines to move it and too little of buyers to take it, “said Scott Shelton, energy specialist at United ICAP.
OPEC + had envisaged restrictions ranging from 15 to 20 million barrels per day (b / d), or 15% to 20% of world supplies. The possibility of deeper cuts pushed oil prices up almost 10% earlier today.
OPEC, however, said it would cut production reductions between July and December to 8 million barrels per day and 6 million barrels between January 2021 and April 2022.
“A lot of hope has been brought to this market in the past few days,” said John Kilduff, partner of the hedge fund Again Capital LLC.
OPEC + has announced that it will hold another videoconference meeting on June 10 to assess the market. Energy ministers from the major Group of 20 (G20) economies are scheduled to meet on Friday.
“We expect other producers outside the OPEC + club to join the measures, which could happen tomorrow during the G20,” the head of the Russian wealth fund and one said. of Moscow’s best oil negotiators, Kirill Dmitriev.
A reduction of 10 million barrels a day would be the largest ever agreed to by OPEC, but Russia insisted that it would only cut production if the United States joined the agreement.
Canada and Brazil are now cutting production due to market forces, but Jason Kenney, Premier of Alberta, Canada’s largest producing province, said he has already done his part.
The United States has not said it will impose production cuts. Instead, he noted that market forces are already pushing producers to back off, as he expects production to drop by almost 2 million bpd by next year.
US oil rigs in service fell from 58 this week to 504, the lowest level since December 2016.
The last OPEC meeting in early March ended acrimoniously, with Russia and Saudi Arabia unable to reach an agreement to limit production as the virus spread, which resulted in aggravated the fall in prices.
Meanwhile, the US contract expiring in June hit its highest premium in the first month since 2009, a sign that traders are concerned that the United States will run out of most shore-based storage in a few weeks, traders said. (Additional reporting by Laila Kearney, Laura Sanicola Devika Krishna Kumar and Jessica Resnick-Ault in New York, Liz Hampton in Denver, Shadia Nasralla in London, Sonali Paul in Melbourne and Seng Li Peng in Singapore; Editing by Simon Webb and Lisa Shumaker)