Adedapo Adesanya
By Adedapo Adesanya
Oil prices recorded marginal gains on Monday after a largest deal on record by oil cartel, the Organization of the Petroleum Exporting Countries (OPEC) and its allies cut production by 10 percent globally.
Even the cut was not enough to move investors who realize that 10 million barrels per day doesn’t go far enough in the grand scheme of things.
On Monday, the global benchmark, the Brent Crude gained 58 cents or 1.84 percent to trade at $31.97 per barrel, while the US West Texas Intermediate gained 23 cents or 0.57 percent to close at $22.76 per barrel.
After four days of discussions, OPEC, along with other nations including Russia, announced on Sunday that an agreement to cut output by 9.7 million barrels per day had been reached.
The move was designed to help falling prices of oil by limiting supply, since prices for crude have plummeted due to coronavirus and an oil price war, which happened when a previous agreement to cut production was not renewed.
Oil prices around the world have plunged to their lowest levels in almost two decades as oil-producing nations produced as much as they could, flooding the market with more oil than needed.
And as demand plunged more than 30 percent in over a month, this called for the agreement. Although, the major party that caused the oil price war, Saudi Arabia and Russia will shoulder about half of the cut, the market’s demand worry is holding prices from rising steadily.
A 10 percent drop of the world’s daily output is only about half of the excess currently in the market, which is why the rally in prices wasn’t huge.
President Donald Trump, who was influential in the deal, cheered the agreement saying in a tweet that it’s a great deal for all.
“Having been involved in the negotiations, to put it mildly, the number that OPEC+ is looking to cut is 20 Million Barrels a day, not the 10 Million that is generally being reported. If anything near this happens, and the World gets back to business from the Covid 19…..
“….disaster, the Energy Industry will be strong again, far faster than currently anticipated. Thank you to all of those who worked with me on getting this very big business back on track, in particular Russia and Saudi Arabia,” the American President wrote.
However, top US bank Goldman Sachs does not hold the opinion that the deal will support oil prices in the coming weeks.
According to the bank, the oil deal would translate into just 4.3 million barrels per day of actual production reduction from Q1 2020 levels, and that is assuming all major OPEC members comply fully and all other producers comply at 50 percent with the agreement.
