Oil Prices React as OPEC Agrees to Production Cuts
Crude Oil: The Story so Far
OPEC+ has finally reached a joint agreement to cut production outputs by 10 million barrels per day.
This decision followed the virtual meeting that was held on Thursday, the 9th of April. This meeting, which was initially scheduled for Monday had to be postponed to Thursday when the decision of the production cut was finally made.
The oil market had been volatile before then, with lots of skepticism on what would become of crude.
Earlier last week, President Donald Trump made the call to Russian President, Vladimir Putin, to set up the talks with the Prince of Saudi Arabia, Mohammed Bin Salman.
The call, in turn, set up a series of events that led to a meeting being scheduled for Monday, 6th of April, to discuss the future of Oil. However, this meeting was postponed.
The market plummeted as a result, and oil prices traded lower on Monday and Tuesday.
However, on Wednesday, a day before the talks, the optimistic bulls kicked into the market to push oil prices higher. A majority believed that an agreement on the OPEC+ meeting would be successful in driving a deal, and now it has.
Aftereffects of the Oil Cut Agreement
The OPEC+ agreement has caused oil prices to swing in both market directions. The prices rose by 12% in the early trade, then went down 9% lower after this gain.
The oil price war seems to have ended within OPEC, but this will only last till May and June. What lies beyond that, no one knows. We all hope the COVID-19 pandemic curve has flattened completely before that time.
In the meantime, however, there is only minimal demand for Oil, and the OPEC cuts might not be enough.
Saudi Arabia agreed to cut production by 3.3 million barrels per day while Russia cut theirs by 2 million barrels per day. Mexico, on the other hand, is looking to boost its oil production. The country has so far managed to double its oil wells, although their production is already dwindling out. Their oil wells are now 423.
Despite these measures, the market will still be oversupplied by about 30 million barrels per day.
But the OPEC+ alliance is relentless in solving the oil problem. It is on the search for non-members that will also pledge to cut their production by about 5 million barrels per day.
On Thursday, the prices peaked at $28.36, then fell to about $23.19 near the day’s low.
WTI, as at 4:45 PM ET, traded at $23.25. This was a loss of $1.84 from its former high. Brent was also off by 2.9% and finished the trading session at $36.68.
One thing is sure: The oil cuts have been agreed upon. However, we might get in full the details of the meeting.
The meeting due to the COVID-19 pandemic had to be a virtual one. There was no news conference, as such, no official report of the OPEC meeting was released.
This technicality has sent a lot of traders in different directions. The confluence of sentiments is expressed in the recent consolidating move of oil prices.