Oil Prices Fall Again Despite OPEC+ Cut Production Deal

By Staff, Agencies

Oil prices dropped on Friday while traders feared that an OPEC deal to slash global supplies by 10% would not offset a historic drop in demand due to the coronavirus outbreak.

The price of Brent crude fell nearly 2.5% to $31.82 per barrel on Friday, despite news that the oil cartel and allies – known as OPEC+ – had reached a deal that would end a price war between Saudi Arabia and Russia that threatened to flood the market with more oil than the world could use.

Mexico initially cast some doubt over OPEC’s plans, after apparently refusing to sign up to its share of cuts, which would have been 400,000 barrels per day [bpd]. The country instead offered to cut 100,000 bpd.

Mexico signaled on Friday that the US may be willing to make further cuts to its production in order to allow Mexico to make less stringent reductions. Mexican president Andres Manuel Lopez Obrador said that US president Donald Trump had agreed to help out by cutting additional US output.

However, G20 energy ministers did not mention production cuts in a statement released after a virtual summit hosted by Saudi Arabia on Friday.

The meeting had been expected to seal the deal on production cuts but the statement pledged that the G20 would work together to ensure oil “market stability”.

“We commit to ensure that the energy sector continues to make a full, effective contribution to overcoming Covid-19 and powering the subsequent global recovery,” the statement said.

The cuts by the oil producer group are expected to reduce global supplies by 10%, or 10m bpd, in an effort to raise prices which hit an 18-year low of $22 per barrel last month. The measure will also push other oil-producing states, including the US, to cut a further 5m bdp to help navigate the deepest oil crisis in decades.

Global oil fuel demand has plunged by as much as 30% or 30m bdp during the coronavirus outbreak, as steps to fight the disease have grounded planes, cut vehicle usage and curbed economic activity.

Even if OPEC+ succeeded in reducing output by 15m bpd, it may not be enough to prop up prices while demand continues to drop during the lockdown. Despite the oil cartel’s best efforts, global storage facilities could still quickly fill up.