By Adedapo Adesanya
Despite the agreement reached last week by oil producers to reduce the supply of crude oil by around 10 percent, the demand for the commodity is likely to remain low.
According to energy analysts, the output cap may not bring the expected rebound for oil prices because of demand worries.
On Sunday, the Organisation of the Petroleum Exporting Countries (OPEC), Russia and other oil producing nations, including the United States, finally agreed to cut supply by a record 9.7 million barrels per day for May and June, to support prices amid the COVID-19 pandemic.
The cut is the single largest output cut in history, but openings in major markets has shown levels below what they were before the meeting on Thursday.
This is because at the meeting, Mexico, a non-OPEC producer, opposed to the percentage it was asked to cut, holding up the final deal, which the market reacted negatively to, causing fall in prices.
However, President Trump said the United States would cut production in an effort to get Mexico to agree, and finally agreed to cut 100,000 barrels per day, instead of the 400,000 barrels per day it had initially been asked to cut.
Certain details of the production cut were not released ,but a rounded agreement, which said 9.7 million barrels will be reduced for the next two months.
According to a report by Bloomberg, the US, Brazil, and Canada will contribute an additional 3.7 million barrels on paper amid a production decline, while other Group of 20 nations will offer 1.3 million.
Further, production cuts will persist beyond the initial two-month period, albeit at a tapered pace. After June, it will be decreased to 7.7 million barrels a day through year-end. Then it will be cut again to 5.8 daily barrels from the start of 2021 through April 2022.
Even with this, this week will be what traders decide it will be because the production cuts were smaller than what the market needed and this shows that it is only going to slow down storages filling up as demand, with expected extension to restrictions, may hinder demand.
Global demand has dropped by more than 30 percent since the start of the pandemic. Though smaller European countries have indicated intentions to ease lockdown, they will still their borders closed to international travels until there is a vaccine.
As at press time, the international crude, Brent Crude, was trading up at $31.30 per barrel, while the US West Texas Intermediate was up at $22.89 per barrel.
Modupe Gbadeyanka