The week started out promising for crude oil traders, hoping for a boost in prices to shore up the U.S. oil industry and to stabilize prices. OPEC, Russia and other oil producing nations overcame a slight snag and finally agreed on Sunday to cut output by a record 9.7 million barrels per day for May-June, representing around 10% of global supply, to support oil prices amid the pandemic, according to Reuters.
The cut was the single largest output cut in history. The specific production numbers weren’t released, but we do know that the 9.7 million barrels per day cut will begin on May 1, and will extend through the end of June.
However, despite the efforts of OPEC+, oil prices continued to retreat throughout the week, hitting a multi-year low in the process.
As it turns out, the agreement wasn’t especially bullish. The production cuts were smaller than what the market needed and all they are likely to do is slow down the stock building constraints problem.
The move by OPEC+ is not big enough to plug the near-term imbalance, which could reach 15 to 20 million barrels per day. Additionally, storage tanks are expected to top out in May. Furthermore, the cuts are too short, ending in June. This is hardly enough time to bring stability and restore support to oil prices, leading some to speculate that OPEC may have to revisit the problem in June.
The cuts may make a difference during the second half of 2020, but that will likely accompany…