LONDON (Reuters) – Oil prices fluctuated on Monday as the positive impact of major producers agreeing to record cuts in world production has been offset by fears that they will not be enough to reduce the glut, as demanded by the pandemic of coronavirus.
After four days of quarrels, the OPEC + group of oil producers, including the Organization of the Petroleum Exporting Countries, Russia and other countries, agreed to cut production by 9.7 million barrels per day (b / d) in May and June, which represents around 10% of world supply.
Futures on Brent LCOc1 rose 14 cents, or 0.4%, to $ 31.62 per barrel at 1108 GMT, after opening at a session high of $ 33.99. The US West Texas Intermediate (WTI) CLc1 futures contract increased 37 cents to $ 23.13 after reaching $ 24.74.
President Donald Trump hailed the oil supply deal, saying it would save jobs in the U.S. energy sector.
Saudi Arabia, Kuwait and the United Arab Emirates have volunteered to make cuts even deeper than those agreed, which would effectively reduce OPEC + supply by 12.5 million barrels per day compared to at current levels, said the Saudi Minister of Energy.
Saudi Arabia set its official selling prices (OSPs) for crude on Monday in May, selling oil to Asia cheaply and keeping prices stable for Europe while increasing them for the United States.
Meanwhile, analysts have expressed doubts about the producers’ likely compliance with production cuts. Even after taking into account full compliance, fears of weak demand still limited oil price gains.
Global fuel consumption has dropped by about 30% due to the COVID-19 pandemic which has killed over 100,000 people worldwide and kept entire nations under control.
“We expect that the OPEC + decision will at best establish a floor in the market,” said Harry Tchilinguirian of BNP Paribas, adding that oil price gains could also be capped by producer coverage.
“We do not expect a sustained recovery in the price of oil until pent-up demand is released in the third quarter.”
The deal had been delayed since Thursday after Mexico backed down from the cuts it had been asked for. The OPEC + group met on Sunday, which resulted in a reduction four times deeper than the previous record reduction of 2008.
OPEC + has also stated that it wants producers outside the group – such as the United States, Canada, Brazil and Norway – to further reduce 5 million bpd.
Canada has expressed its willingness to reduce and Norway has said it will decide to reduce it “in the near future”.
The United States, where antitrust law makes it difficult to work in tandem with groups such as OPEC, said low prices mean production will already drop to 2 million bpd this year without any cuts.
The Brent contango – the market structure in which subsequent prices are higher than LCOc1-LCOc7 quick supplies – has widened, highlighting some optimism about the longer-term impact of the cuts. OPEC +, but also the current concerns of overproduction.
Chart – Brent 6-month content steeper after agreement to reduce world production: here
“The fundamentals still look incredibly bearish for the weeks and months ahead and imply that the time gaps should fall in a deeper context than the current levels,” said analysts at the EGF.
Citi analysts raised their Brent price forecasts for the third and fourth quarters to $ 35 and $ 45 a barrel respectively.
Morgan Stanley also raised its forecast from $ 5 for the second half to between $ 30 and $ 35 per barrel.
Additional report by Florence Tan in Singapore; Editing by David Goodman and Jan Harvey
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