NEW YORK/LONDON (Reuters) – OPEC and other major oil producers on Thursday discussed potential big output cuts in the face of a huge fall in demand due to the coronavirus crisis.
FILE PHOTO: A sticker reads crude oil on the side of a storage tank in the Permian Basin in Mentone, Loving County, Texas, U.S. November 22, 2019. REUTERS/Angus Mordant
The Organization of the Petroleum Exporting Countries and other producers including Russia, a group known as OPEC+, met on Thursday. The meeting included record cuts equivalent to 10% to 15% of global supplies, although demand has plunged by up to 30%.
Analysts say that, even if such record cuts are agreed, they will not be enough.
A draft agreement allows for a 10 million-barrel-per-day cut for May and June, according to OPEC+ sources. The group plans for OPEC+ to cut 10 million bpd and other nations to cut 5 million bpd, one source told Reuters.
The 10 million-bpd cuts will be only for May and June, and then will be reduced to cuts of 8 million bpd through the year end, Iran’s oil minister said in a TV interview.
AGAIN CAPITAL:
John Kilduff, managing partner: “OPEC+ seems to disappoint the market more often than not. … They needed to move mountains here and they maybe moved a hill.”
VONTOBEL ASSET MANAGEMENT
Michel Salden, head of commodities: “Today’s ‘deal’ did not bring much clarity so far and looks more like an invitation to the G20 energy ministers to agree on a 5 mbpd cut tomorrow which would bring the overall cut in oil output to 15 mbpd.”
UNITED ICAP:
Scott Shelton, energy specialist: “While OPEC is cutting as expected, there is simply too much crude in the physical space for sale, with too few pipelines to move it and too few buyers to take it. The most expensive priced oil in the U.S. is Cushing WTI for May and that is likely to lead us to lower prices regardless of what OPEC does.”
RBC CAPITAL MARKETS:
Michael Tran, managing director of energy strategy: “The market’s muted price reaction is a sobering indicator of the headwinds that remain, namely demand destruction. An acute near-term surge in crude prices would cripple refining economics and result in further run cuts.”
ALBERTA GOVERNMENT
Premier Jason Kenney: “The main concern in OPEC+ is that North American producers not surge production to occupy the space created by their own curtailment, should they do it.”
MORNINGSTAR:
Sandy Fielden, director of oil and products research: “Usual expected drama so far. Cuts talk all well and good but ‘Who, what, when and where’ is what actually matters. Plus the G20 role is still a mystery.”
WELLS FARGO:
Roger Read, senior energy analyst: “Until the extreme social distancing economic shutdown measures are significantly relaxed across North America, Europe and parts of Asia, any OPEC+ supply cuts are simply playing catch-up at best.”
BAIRD
Ethan Bellamy, senior analyst: “10 million barrels per day is insufficient to balance the market. … OPEC’s only real choice to bring the U.S. and other higher-cost producers along is to allow price to ration supply. With half a trillion in reserves, we think the Russians can outlast U.S. producers in a fight for market share.”
RYSTAD ENERGY
Bjornar Tonhaugen, head of oil markets: “A 10 million bpd deal is far lower than what the market needs at the moment. And even that seems to be of a fragile nature, as OPEC+ producers appear to struggle to agree, dragging negotiations longer than expected.”
GOLDMAN SACHS
“Our updated 2020 global oil balance suggests that a 10million barrels per day (bpd) headline cut (for an effective 6.5million bpd cut in production) would not be sufficient, stillrequiring an additional 4 million bpd of necessary price inducedshut-ins.”
MIZUHO
Bob Yawger, director of energy futures: “If they cut, it won’t be enough. If they agree to a 10 million barrel (per day) cut, it will only slow filling of storage. It’s not going to save the day, but it’s better than nothing.”
JP MORGAN
The bank expects OPEC+ to agree to cut 4.3 million bpd.”While clearly not enough to offset the demand drop … (thecut) would materially lessen the risk of storage being filledand offer a smoother route to working off inventories.”
INTERNATIONAL ENERGY AGENCY
The head of the International Energy Agency, Fatih Birol,said a production cut of as much as 10 million bpd would stillresult in a 15 million bpd build up of crude in the secondquarter.
BCS GLOBAL MARKETS
Kirill Tachennikov, director and senior oil analyst: “Even if a 10 million bpd cut is agreed, it is not technically possible to achieve these numbers in less than a month, and it is not enough to offset current oversupply that is exceeding 20 million bpd as it stands. As a result, the challenges of oil storage gradually filling up is still a very real issue.”
Compiled by Ron Bousso and Jessica Resnick-Ault; Editing by Edmund Blair and Marguerita Choy
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