Crude oil has continued to slip today despite the group of countries known as OPEC+ finally agreeing to slash production by 9.7 million barrels per day, inaugurating the single-largest output reduction on record. President Trump, who was touting the agreement last week, tweeted that it will “will save hundreds of thousands of energy jobs in the United States,” adding it will be “great for all.”
Oil prices had plummeted more than 40% since early March after Saudi Arabia-led OPEC and Russia failed to reach a deal, amid an ever-worsening coronavirus pandemic, which has continued to damage the global economic outlook.
However, after several days of serious negotiations, members of the Organization of the Petroleum Exporting Countries and allies agreed Sunday to the production cut which will take place from May 1 through June 30 of this year.
The agreement will also limit production to around 8 million barrels a day from July 1 through Dec. 31, followed by 6 million barrels in cuts from Jan. 1, 2021 to April 30, 2022. Analysts were concern that the deal failed it may have catalyzed a collapse of prices on Monday, but after an initial pop, oil prices still seem to be under pressure, amid a demand that has been stymied by coronavirus-driven economic shutdowns, as consumers stay at home and fuel demand continues to dampen.
“Talk about how this pandemic has upset the global apple cart and here you have another truly profound instance: A president who spent most of his term fighting OPEC and high oil prices has now turned savior for the cartel and the market,” said Barani Krishnan, senior analyst at Investing.com, in emailed comments sent late Sunday.
After an initial 4% explosion higher, crude slipped into negative territory, West Texas Intermediate crude for May delivery trading around $22.75 a barrel, having dropped as low as $22 in Sunday overnight trading.
“Ultimately, this simply reflects that no voluntary cuts could be large enough to offset the 19 MB/d average April-May demand loss due to the coronavirus. We, therefore, reiterate our view that inland crude prices will decline further in coming weeks as storage capacity becomes saturated and expect further weakness in WTI time spreads and crude prices in coming weeks, as already presaged on Friday, with downside risks to our short-term $20/bbl forecast,” said Damien Courvalin, Callum Bruce and Jeffrey Currie, analysts at Goldman Sachs, in a note to clients.
For ETF investors watching the crude market, ETFs are mixed, with the United States Oil Fund LP (USO) falling 1%, while leveraged fund, ProShares Ultra Bloomberg Crude Oil (UCO) has climbed 1% as of roughly 2 PM Eastern time Monday.
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