A record cut didn’t do enough for the market

A record cut didn’t do enough for the market

The long-awaited meeting managed to make some waves, but it was not enough. After OPEC+ decided on a historic production cut, the prices were all over the place.

The two benchmarks, Oil and Brent Oil, lost more than 50% of their value since the beginning of the year. After four days of discussions, OPEC+ managed to agree Sunday night to a 9.7 million BPD production cut in May and June. Overall, it is a cut of 20% of the global Oil supply.

It is the most significant recent Oil cut, four times bigger than the one made in 2008. The cut will relax gradually after June, but the reductions in production will be in place until April 2022.

The U.S. president, Donald Trump, applauded the measures taken by Saudi Arabia and Russia "to return oil production to levels consistent with global energy and financial market stability."

The Saudi Energy Minister told Reuters that real cuts of 12.5 million BPD would be made by Saudi Arabia, United Arab Emirates, and Kuwait during April, which is more than 23% from the initial decision. Brazil, Canada, Indonesia, Norway, and the U.S. will cut between 4-5 million barrels per day.

The International Energy Agency (IEA) is said to purchase inventories worth about 3 million BPD in the following months. More about the matter will be announced Wednesday when the monthly report is released.

As said before, the prices were mixed, with Oil gaining 3.9% after it lost more than 3% on the same day. Brent Oil rose 2.7% to $32.65 per barrel, but it was underperforming compared to the same day’s highs.

Morgan Stanley expects the demand to fall approximately 14 million BPD in the second quarter. But it raised the prices for Brent and Oil, to $30 from $25 per barrel, and to $27.50 from $22.50, respectively.

Goldman Sachs thinks that the market will rebalance once the demand comes back to normal.

F.G.E. analysts expect the stockpiles to rise in the second quarter to levels that haven't come into attention since 1982.

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Sources: reuters.com, investing.com, forexlive.com

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Users/readers should not rely solely on the information presented herewith and should do their own research/analysis by also reading the actual underlying research. The content herewith is generic and does not take into consideration individual personal circumstances, investment experience or current financial situation.

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