Yesterday (9 April) there was a video conference of OPEC + countries. The aim of the talks was to reduce the production of crude oil to reduce supply, because of the coronavirus epidemic, the demand for oil dropped dramatically (mainly due to the huge reduction in air traffic and transport).
Already after 16:00, unofficial information began to appear on social media about how much production could be reduced. Earlier there were talks about cuts of 10 to 15 million barrels a day. At some point, however, unconfirmed information appeared about the possibility of cutting by 20 million barrels. This ignited emotions on the oil market, the price of which began to quickly rise. Then buyers' hopes were dispelled. Further forecasts appeared, which no longer assumed a drop in demand by 20 million barrels a day, but by 30-35 million. This significantly changed the market attitude.
The price of a barrel of WTI oil fell by about 20 percent from the daily high when investors learned more details of the agreement. And so, from May 1, for two months, OPEC + countries will reduce production by 10 million barrels a day. Then, from July to December 2020, production will be reduced by 8 million barrels per day, and from January 2021 to April 2022, the decrease in production will be 6 million barrels per day compared to current levels. This subject will still be verified in December 2021.
Currently, attention has been directed to the meeting of G20 energy ministers. It is today, on Friday, April 10, at this meeting, a joint decision could be made to reduce production from 20 of the world's largest economies. OPEC called, among others The United States and Canada to cut production by a total of 5 million barrels a day and make such a declaration during the Friday meeting.
According to sources similar to OPEC, the goal is also to stabilize the oil market by increasing demand from the G20 countries that would buy cheap oil for strategic oil reserves.
The problem regarding the low oil price seems to be very wide. The US shale sector is struggling with a wave of bankruptcies, and the fall in demand is causing many refineries and oil fields to be out of service. Oil sector workers can significantly increase the problem of unemployment, and in addition, poorer countries for which oil was the main source of income, not enough that they do not have it now, they must bear the huge costs of fighting the epidemic.
Daniel Kostecki, chief analyst at Conotoxia Ltd. (Forex Cinkciarz.pl service)
The above comment is not a recommendation within the meaning of the Regulation of the Minister of Finance of October 19, 2005. It has been prepared for information purposes and should not be the basis for making investment decisions. Neither the author of the study nor Conotoxia Ltd. are responsible for investment decisions made on the basis of the information contained in this commentary. Copying or reproduction of this document without the written permission of Conotoxia Ltd. is prohibited.
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