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News about further extraction cut caused 5% oil growth

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News about further extraction cut caused 5% oil growth
April 13
09:00 2020

Today’s session started with the increased volatility of black gold. The growth has amounted to 5%. We recall that full of intrigue and drama negotiations of the enlarged OPEC+ continued for several days. As the result, there was signed an agreement on a general cut in oil production by about 13%.

It should be noted that the transaction did not meet the investors’ expectations. Firstly, the agreement will only enter into force on May 1. Secondly, the decrease in demand is so great that even the production cut will not help. Thirdly, there is so much oil accumulated in the storage facilities that a 13% decline in production cannot solve the problem.

At 7.15 Moscow time, Brent crude oil futures were trading at $ 32.84. The price was 4.3% higher than the closing level of the last trading session.

The futures for WTI crude oil also show the growth. At the same time the asset grew by 5% and was trading at around 23.89 US dollars per barrel.

Mexico’s position also has complicated the course of the negotiations. The fact is that they have refused to make commitments to restrict the extraction. It should be noted that during the election campaign, the president of the state promised to restore the national oil industry. By the way, Mexico has not suffered from lower prices in the energy market, since all supplies were hedged at $ 49 per barrel.

However, a compromise has been reached. The decline in oil production will amount not to 10 million, but to 9.7 million barrels per day. Mexico was supposed to cut extraction in May and June by 400 thousand bpd. The negotiations will result in a decrease in Mexico’s production by 100 thousand b/d the United States will compensate for the missing barrels.

The coronavirus pandemic continues to spread around the world; due to the frozen business activity, energy demand has fallen by about a third. The OPEC+ countries have managed to reach a decision, which seemed to be rather impossible. They have agreed on a record decline in production by as much as 13%, but it is quite clear that the measures taken are completely insufficient to balance low demand.  

 

The material was prepared with the participation of Katya Wilson,
a leading analyst of the brokerage company UFT Group

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