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Where Does Oil Go After The Largest Production Cut In History?

Saudi Arabia

Right now, it is understandably difficult for anything to interrupt the coronavirus news cycle, even in the focused world of energy and commodities. This week, however, one thing managed to do that. On Thursday, there was a virtual meeting of what has become known as the OPEC+ group, and the meeting and its results were big news.

OPEC+ is the group of oil-producing countries that includes OPEC and a few select, non-OPEC oil-producing countries, most notably Russia. They first came together in 2016 to cut crude output in an attempt to stabilize prices and have adjusted the level and distribution of those cuts several times since. As you can see from the chart, oil prices climbed significantly for two years following the agreement but fell dramatically at the end of 2018 before collapsing completely this year.

Part of this year’s dramatic collapse was due to the output restriction agreement falling apart at the start of last month, resulting in the biggest one-day decline in oil’s history. So, when OPEC+ announced on Thursday that they had agreed to cuts of 10 million barrels per day, it was big news.

The problem, though, is that WTI futures did this on the announcement…


There are two obvious questions. Why did oil futures drop so much on the announcement of the biggest output cuts ever, and what does it mean for prices going forward?

The first is the easier question to answer.

What we saw yesterday was a giant,…





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