Will the 10 million barrel cut be enough to counter demand slump?

Question

Accepted Answer

The 10 Million Barrel Cut May Not Be Sufficient to Counter the Demand Slump

OPEC producers, led by Saudi Arabia and Russia, have agreed to a historic reduction in oil production, cutting nearly 10 million barrels per day starting in May. Despite this significant agreement, analysts express concerns that these measures may not be enough to prevent further price declines in the short term, as global storage capacity is nearing its limits. The agreement aims to address the severe drop in oil demand caused by the Covid-19 pandemic.
OPEC and Allies Agree to Substantial Production Cuts

In response to a dramatic decrease in global oil demand, OPEC and its allies reached a compromise agreement to slash production by approximately 10 million barrels per day. This decision, finalized on a Sunday, marks one of the largest coordinated supply cuts in history. The immediate impact saw oil futures surge in early Asian trading, with WTI climbing nearly eight per cent and Brent up five per cent, before paring some gains.
Analysts Express Skepticism About Long-Term Rebound

While OPEC Secretary General Mohammad Barkindo described the cuts as "historic," many analysts remain unconvinced about their long-term effectiveness. The primary concern is that the agreed-upon reductions might be insufficient to stimulate a sustained recovery in oil prices. This sentiment is echoed by market strategists who believe the agreement could be "a day late and a 'barrel short'" in its ability to prevent further price erosion.
Storage Capacity Nearing Limit Amidst Demand Slump

A significant factor contributing to the skepticism is the current state of global oil storage. With demand having plummeted due to widespread lockdowns and economic slowdowns resulting from the Covid-19 pandemic, storage facilities are reportedly nearing their capacity. This situation creates a potential bottleneck, where even with production cuts, the sheer volume of existing oil could continue to depress prices in the coming weeks. The demand slump, exacerbated by a prior price war between Saudi Arabia and Russia, has put immense pressure on the oil market.

Reading history

Hide →

This history is cleared when the page is closed.

Will the 10 million barrel cut be enough to counter demand slump?

Loading

Was this article helpful?

Helpful

Not helpful

Report an issue

1

0

0

Share with friends