OPEC++ may have reached today a commitment to cut 10 million bpd of oil production in both May and June, but oil prices reacted poorly to the largest production cut in OPEC’s history, as it had hoped for a larger cut.
The market, which is acutely aware that the demand destruction is somewhere near 30 million barrels per day due to the coronavirus pandemic, fell in Thursday afternoon trading. The WTI benchmark had fallen 6.10% by 3:45pm EDT, to $23.56. The Brent benchmark fell a more moderate 2.5% to reach $32.02 per barrel.
OPEC and its extended band of allies held talks today on the state of the oil market and its coronavirus response, agreeing in principle to a 10 million bpd cut across the group. As part of the deal, delegates unofficially reported that Saudi Arabia and Russia would both curb production to about 8.5 million bpd.
The remaining details of who would cut what has not yet been disclosed. One delegate, however, suggested that each member agreed on cutting production by 23%–from what baseline level, we are not sure, short of an official announcement from OPEC.
Alberta said it was not asked by the group to cut production, according to a statement from Alberta’s Premiere. Alberta has already made it known that it already chipped in for the production cut by necessity.
The production cuts by OPEC++ would have come one way or another—whether in a planned fashion or out of necessity as the bottom continues to fall out of demand and as storage fills. This, however, allows the group to determine exactly which countries are tasked with cutting what, and allows the group to declare a subdued victory. An even bigger victory might have been agreeing to a production cut deal over a month ago as planned.
Bloomberg sources suggest that OPEC+ is expecting further cuts by the G-20 group countries tomorrow of about 5 million bpd. The United States has indicated that it is already cutting as a natural market consequence.