Record Production Cut Agreement Fails to Boost Oil Prices
The OPEC+ group of producers, led by Saudi Arabia and Russia, agreed to a record output cut on Sunday, that is expected to reduce global supplies by around 10% to counter the drop in consumption caused by the worldwide coronavirus pandemic. The deal to cut oil production by around 9.7 million barrels per day was reached between 23 producing nations via video conference, after attempts to conclude a deal last week were thwarted by Mexico’s resistance to the proposed cuts.
However, news of the cuts was met with some skepticism as several industry analysts have estimated that the expected drop in global oil demand over the new quarters could far outweigh the quantum of cuts agreed to by the producer group. Even as the Brent crude contract for June delivery traded up to around US$33 per barrel in early trade on Monday, it subsequently dropped back down to around US$31.50 per barrel. The near-month contract for U.S. benchmark WTI crude also rose to over US$24 per barrel before receding to just below US$23 per barrel.
Broader financial and commodity markets were also subdued on Monday, as investor sentiment remained downbeat on account of the prospect of a deep economic contraction due to the Covid-19 crisis, which has killed more than 110,000 people globally and kept most of the world’s major economies under lockdown for the past month.