OPEC+ supply cuts fail to stabilise oil prices amid Covid-19
OPEC+ supply cuts fail to support oil prices amid weakening demand due to Covid-19 pandemic.
Brent crude is trading 2% lower at $30.95 a barrel as of 15:10 (GMT) on Tuesday, while the US West Texas Intermediate (WTI) is also down 2% at $21.75 a barrel.
OPEC and allies led by Russia, more commonly referred to as OPEC+, held talks last week and agreed on Sunday to reduce global supply by up to 20% with the intention of propping up oil prices and bring about market stability.
OPEC+ agreed to remove 9.7 billion barrels of oil per day (bopd) from the market at the start of May, with the supply cuts remaining I place until the end of July. After this date, the organisation plans to relax supply cuts to 7.7 million bopd until the end of the year.
Supply cuts will not offset declining demand for oil
Despite OPEC+ reducing supply in an effort to strengthen oil prices, forecasters contend that the measures will do little to offset declining demand, especially when analysts predict a 23 million bopd supply overhang in April.
Oil prices have fallen by 50% since the start of the year and global demand forecasts are down by 30%, raising eyebrows about the efficacy of the OPEC+ supply cuts ability to support oil markets.
‘Ultimately, the size of the demand shock is simply too large for a coordinated supply cut,’ analysts from Goldman Sachs said in a note last week.
Oil could hit $45 a barrel in 2020, Gazprom CEO says
The price of oil could rally as high as $45 a barrel this year of the US ease national lockdowns and demand improves, according to Gazprom Neft CEO Alexander Dyukov in an interview with Russian newspaper Kommersant.
Dyukov was quick to add, however, that for oil prices to rise to that level it would require global economic activity to rebound significantly in the second half of the year, especially with demand so low amid the coronavirus outbreak.
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