Record oil output cuts fail to make waves in coronavirus-hit market

The minimal impact on oil prices from a global deal for record output cuts showed that oil producers have a mountain to climb if they are to restore market balance as the coronavirus shreds demand and sends stockpiles soaring, industry watchers said.

After several days of discussions, oil producing and consuming countries aim to remove nearly 20 million barrels per day (bpd) or 20% of global supply from the market, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said on Monday.

The oil market has barely shrugged, however: Brent crude gained 1.5% on Monday, while U.S. crude ended the day lower. The move underscores what both investors and producers already understand – that the monumental deal to cut supply in face of a 30% drop in demand could only accomplish so much initially.

The Saudi energy minister downplayed the move in oil prices on Monday, saying anticipation of the cuts was the reason for a rally in oil prices before the meeting. Since dipping below $22 a barrel two weeks ago, Brent has rebounded by roughly 48%.

“It’s the typical deal, you know: buy the rumour, and sell the news,” Prince Abdulaziz bin Salman said.

The minister added on Monday that effective global oil supply cuts would amount to around 19.5 million barrels per day, taking into account the reduction pact agreed by OPEC+, pledges by other G20 nations and oil purchases into reserves. The Organization of the Petroleum Exporting Countries and its allies including Russia, known as OPEC+, are cutting 9.7 million bpd in supply.

Other major producers like the United States and Canada gave indirect commitments to cuts as well, playing up forecasts for drastic production declines in coming months due to the free-fall in prices.

He said that G20 nations had pledged to cut about 3.7 million bpd and that strategic reserves purchases would reach roughly 200 million barrels over the next couple of months.

Both Brent LCOc1 and WTI CLc1 have lost more than half of their value this year.