Oil prices stabilised slightly after OPEC producers and allies agreed to make a record production cut of 9.7 million barrels per day to eliminate the oil glut that had slashed oil prices to the lowest level in eighteen years.

While the production cut of 9.7 million barrels per day will begin by the start of next month and will continue till the end of June, the group agreed to reduce the production cuts to 7 million barrels per day from July that will extend through the end of this year.

The group of 23 countries also announced production cuts of 5.8 million barrels per day from the beginning of 2021 through April 2022.

Despite a record production deal, oil price gains are capped by trader’s concerns over demand due to the lockdowns amid coronavirus outspread.

Oil demand declined 30% last month and the forecasts are suggesting a similar drop for April which could also extend into May.

US Oil Chart - Oil - Brent Crude Chart

“It’s simply too late to prevent a super-large inventory build of over one billion barrels between mid-March and late May and to stop spot prices from falling into single digits,” he said.

WTI crude oil price continues to trade in a $20 a barrel range while Brent in hovering around $33 a barrel – both are down more than 50% since the beginning of this year. 

OPEC and its allies are expecting similar cuts from other big players, including the United States that has the capacity to pump more than 12 million barrels a day.

“While the OPEC+ cuts do not seem to be conditional on US cuts, there is a risk that the members could have a rethink if they don’t see US production falling over a period of time,” Suvro Sarkar, a regional energy analyst at DBS Bank said.