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Here are the main points so far of the OPEC+ agreement to cut oil output (and the 3 things they missed)

  
Analysis, Crude
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OPEC+ and the G20 have agreed to cut oil production by just under 10 million barrels / day.

Oil trading begins for the week at 2200GMT with Sunday evening trade on CME,
ICYMI … :
  • a cut of circa 9.7 million barrels a day of oil across OPEC+ and the G20
  • 13-nation OPEC and others (Russia, US are two) agreed to share cuts

Its unclear how the cuts are to be apportioned, and how the US intends to enforce its promised cuts, but indications are (its is very unclear, but these from sources, awaiting confirmation):

  • Mexico cut 100,000 barrels a day
  • US by 300,000 barrels / day
  • Saudi Arabia’s production to be reduced to 8.5m bpd (from the current whopping 12 million bpd)

When oil trade reopens for the week we’ll see how successful the agreement is, so far, at limiting further price falls for oil.

The important factors that the supply cut does not, is not able, to address is of course is the demand side of the equation. Demand is lower due to:
  • social distancing lock downs of economies
  • the further, recessionary economic impact of these measures (the impacts will linger)
Back to the supply side to finish up, there is a huge overhang of oil in storage.
OPEC+ G20 cut oil production

OPEC cuts 2020 global oil demand growth forecast by 920K bpd

  
Analysis, Crude
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The latest from OPEC

In other times that would be a shocking drop but now it sounds behind the curve. Obviously demand is going to fall much more in a global pandemic.
  • Saudi Arabia pumped 9.68 mbpd in Feb
  • Cuts non-OEPC supply estimate by 490K bpd to 1.76 mbpd
WTI crude oil is down $1.18 to $33.17 today and is just off session lows. There’s been no reaction to this news.

OPEC cuts Q1 oil demand growth estimate by 440k bpd on coronavirus outbreak

  
Analysis, Crude
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OPEC releases its latest report on the oil market

OPEC
  • 2020 oil demand growth outlook cut by 230k bpd to 0.99 mil bpd
  • Coronavirus outbreak adds to uncertainties for oil market this year
  • The situation needs continuous monitoring
  • To face oil surplus of 570k bpd in Q2
The downward revisions are not surprising as they don’t just see the virus having an impact on the oil market in Q1, but also for larger portions of the year.
This is in part why they are trying to push forward with the additional output cuts but so far we are still waiting on a response from Russia regarding the latest proposal.
The thing about Russia is that, they always play hard ball but eventually cave when it comes to OPEC+ executing new output cuts. However, that doesn’t mean they will necessarily contribute and the bulk of the responsibility will fall on Saudi Arabia instead.
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