Oil Prices Crash Towards $20 Despite 10 Million Bpd Historic Cut

The supply and demand fundamentals are horrifying; demand destruction is huge and real: “Once the politics is over then it will settle to around $50”, says Islamabad Policy Research Institute (IPRI) think tank’s President Hasham Saddique.

SoDATA — On Thursday, the OPEC++ group agreed, in principle, to cut 10 million bpd in oil production, the likes of which the world has never seen.

Energy analyst Rashid Husain Syed says there are skeptics about the impact of the deal- if any. Mexico’s position is still contentious. Trump had to speak to its president.

According to Syed, demand destruction is huge and real. Post-COVID, it would be a new world. But the US is now a part of the output management deal – one way or another.

“The only certain thing is OPEC ++ with US coming into being. How long it lasts is another question. OPEC++ also includes the US, other producers such as Mexico, Norway, Brazil, Canada besides indeed OPEC, Russia and non OPEC Russian allies”.

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OPEC’s influence waned as U.S. shale became a bigger and bigger oil-market adversary. OPEC added a few non-OPEC members, including Russia, to form OPEC+. With even more market clout stripped away from the group by the colossal demand destruction thanks to the coronavirus, OPEC has enlisted the help of even more oil-producing countries. This group has been referred to as OPEC++.

Global oil demand is thought to have taken as much as a 30 million bpd hit, and some thought even more barrels would be cut to stabilize the fall in oil prices, and 10bpd cut may not be enough. The hiccup in the deal had been the rivalry between Saudi Arabia and Russia, say analysts. “The world still needs oil. Once the politics is over then it will settle to around $50”, says Islamabad Policy Research Institute (IPRI) think tank’s President Hasham Saddique.

Oil prices on Thursday responded with a lukewarm reception to the historic deal. On Friday, oil prices crashed towards $20 despite the cut. All eyes are now on G20 developments and more production cut news over the weekend, says a report.

Markets decided that the cut was insufficient to balance the demand deficit as oil inventories burst at the seams and threaten oil prices the world over. “The supply and demand fundamentals are horrifying,” said OPEC Secretary-General Mohammed Barkindo.

According to Andreas de Vries, a Strategy Consultant in the Oil & Gas industry, “in the Best-Case Scenario, the worst is yet to come for global crude oil demand. Ceteris paribus (all other things equal), the price of crude oil would continue to go down for at least another 2 to 3 months. $20 or even $10 per barrel is a real possibility”.