Rebound in oil prices after the 'historic' agreement at OPEC+

  •   14/04/2020 - 14h00
  •   DEHOUI Lionel

Finally, the countries that produce the black gold that is oil have found a point of agreement. This Sunday, OPEC members agreed to reduce their oil production. It is an agreement " historique " which was not won in advance because of the opposition between Russia and Saudi Arabia. On the Asian continent, it seems that the oil market was just waiting for this news to soar prices. This is the news of this Monday.

Trade Oil online
80.5% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Rebound in oil prices after the 'historic' agreement at OPEC+
Image copyright: anax44 - Flickr

One dollar more

From Russia to Saudi Arabia, Kuwait and other OPEC+ countries, oil production is expected to fall. The consequences of this decision of the Organization of the Petroleum Exporting Countries are immediate. Oil prices have gained $1 more per barrel. In addition, concerns are arising from everywhere, because this reduction already seems insufficient. The convid-19 pandemic has melted the global demand for oil.

The giant producers have found themselves in overproduction. It was therefore almost impossible to convince them to reduce in this crisis context. The countries concerned by this agreement will have to reduce their daily production by 9.7 million barrels. The clauses of this agreement will enter into force from the first day of next month (May). This corresponds to a 10% reduction in world demand.

 

The values of oil

As of 5:20 GMT, a gain of $1.29 per barrel was realized by the LCOc1 Brent futures contracts. This finally rebounded 4.1% to $32.77. Also, WTI light crude oil futures gained $1.01 per barrel. That's $23.77 with a 4.4% gain. These values very quickly prompted comments on the agreement reached.

IHS Markit Vice President Daniel Yergen said that the agreement prevents several business sectors from going into a full dive. A deep crisis would be inevitable in the economic and national oil sector. And this will also be the case in many other industrial sectors. Another consequence is that, after the crisis, the pressure on prices will be less severe. This means that the agreement also restricts the constitution of oil reserves, according to the vice-president.

 

Producing giants show sensitivity

Some countries are planning to reduce their production further. They may decrease more than the agreement predicts. Among them are Kuwait, the United Arab Emirates, but also Saudi Arabia. This is the opinion of the Saudi energy minister. He goes on to estimate that OPEC+'s global oil supply would fall by 12.5 million barrels per day. In a tweet, U.S. President Donald TRUMP sees only the rescue of thousands of U.S. jobs in the energy sector.

 

The impacts of the agreement

Courts that were trying to make a good impression are being held back by lingering concerns. The overall global fuel market is estimated to be in freefall by more than 30% as a result of the Covid-19 pandemic. The agreement has also led to a reduction in oil supply greater than in 2008 and four times over. This is a new reduction record that replaces that of the 2008 financial crisis.

 

The OPEC+ appeal

However, other non-OPEC+ producing countries have been invited to follow the reduction train. Canada, Norway, Brazil and the United States are the most expected to attend. They are eagerly awaiting a positive response for the health of the oil sector.