Oil prices began to fall hours after the world’s largest producers agreed to cut production to record levels, fearing that the plan to consolidate the world market would not be enough.
Despite the plans of the Opec oil cartel and its allies to withhold about 10% of world supplies, or nearly 10 million barrels per day, Brent crude prices fell to just over $ 30 a barrel on Monday morning.
Oil prices stabilized at just under $ 32 a barrel in the afternoon, but remained well below the $ 36 bar reached earlier this month in anticipation of the deal. The oil market started the year at $ 65 a barrel.
The rare global cooperation pact concluded over the Easter weekend has been supported by G20 countries outside the Opec + alliance, including the United States, Canada and Norway. Saudi Energy Minister Prince Abdulaziz bin Salman told reporters that the deal would help deepen Opec + production cuts to around 19.5 million barrels of oil per day in total.
He said G20 nations plan to cut about 3.7 million barrels of oil a day from global production. At the same time, the Internal Energy Agency has agreed to buy 200 million barrels of oil over the next few months, which will be kept in a strategic reserve.
But industry experts fear the plan will offset the debilitating effect that the coronavirus pandemic has had on global demand for oil and leave the market overloaded with crude for most of the year.
Goldman Sachs warned that the “historic but insufficient” deal would not go far enough to prevent supplies from overwhelming the world’s oil storage facilities and forcing producers to close their wells.
The US bank said oil prices would continue to fall in the coming weeks as the voluntary production reductions negotiated by Opec were “still too little and too late” to deal with a drop in demand from 19 million barrels per day in April and May.
Market analysts at French investment bank BNP Paribas said the deal could “at best” help set a floor on falling oil prices in the market before a recovery is possible later this year. year.
Donald Trump said the plan to cut 20 million barrels a day from global oil production would ensure the energy sector is “strong again, much faster than expected.”
“Having been involved in the negotiations, to put it mildly, the number that Opec + is seeking to reduce is 20 million barrels a day, not the 10 million that are commonly reported,” the US president said on Twitter. .
Opec plans to maintain oil production until April next year. This could help push prices up in the second half, as demand for oil to produce transportation fuels begins to recover as travel restrictions on coronaviruses ease.
Morgan Stanley raised its forecast for second-quarter oil prices by $ 5, from $ 30 to $ 35 per barrel, and Citi believes prices could climb between $ 35 and $ 45 per barrel.
Energy market experts at Rystad Energy said oil prices are not expected to return to pre-coronavirus levels this year, despite production cuts, as excess oil has already created a glut in the market. market.
“It will take a while for the stocks to fall,” analysts said. “After weeks of volatility, the market is now reacting more cautiously to speculation and is waiting for concrete agreements to risk raising prices to different levels. “
Brent crude rose from an 18-year low to under $ 23 a barrel earlier this month to more than $ 36 a barrel last week, as talks between Saudi Arabia and Russia appeared to signal the the end of a bitter price war that threatened to worsen the impact of the pandemic on the oil market.