By Adedapo Adesanya
Oil prices fell from an initial rise recorded on Thursday after major global oil producers agreed to put a ceiling on the volume of the commodity to produce per day.
This agreement by oil producers was reached to counter the collapse in demand due to lockdowns around the world influenced by coronavirus.
The Organisation of the Petroleum Exporting Countries (OPEC) and Russia and other producers known as OPEC+ were reported to have agreed to reduce to cut output by 10 million per day, ending an oil price war between Saudi and Russia, which had put further pressure on prices.
However, the market reacted negatively to the news after details of the proposal, which as at press time had not been formally agreed by OPEC ministers, emerged.
Brent crude, the global benchmark, dropped 89 cents or 2.28 percent to trade at $32.09 per barrel. As for the US benchmark, the West Texas Intermediate (WTI), it fell by $1.57 or 6.26 percent to $23.51 per barrel.
Oil prices had been pointing up in the morning ahead of the meeting as reported by Business Post, but they turned negative as traders awaited confirmation of the cut, including how it would be divided among the OPEC++ members as well as the production numbers on which the cut would be based.
Even when this was revealed, the market did not surge as expected. It was disclosed that Saudi Arabia and Russia, the two biggest producers in the deal, agreed between them to cut about 5 million per day, while other producers agreed to remove an additional 5 million barrels.
The cartel also called on the US and Canada, among other countries, to cut another 5 million barrels per day when G20 energy ministers hold an extraordinary meeting on Friday, April 10.
The cut of 10 million barrels per day of oil production will last for two months- May and June, but the unexpected hand of the market did not move in favour as it had hoped for a larger cut as reports before the meeting had suggested that Saudi Arabia and Russia were discussing cuts that could take a record 20 million barrels per day of global production offline.
Before Thursday, the market had been watching for cuts in the 10 million to 15 million barrels per day range after President Donald Trump said he had spoken to Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman and expected them to announce a deal of that size.
If oil prices don’t let on, it will mean more problem for the market facing a large demand drop due to the coronavirus spread, but the market might take a turn when the full details of the final deal, expected to be announced after the G20 meeting on Friday.
Modupe Gbadeyanka