In April, U.S. crude, West Texas Intermediate (WTI), dropped to it’s all-time low and closed negative for its first time in history, while Brent crude dropped close to a 21-year low as the COVID-19 pandemic paused economic growth globally.
The Organization of Petroleum Exporting Countries and its petro allies, also known as OPEC+, had earlier increased crude oil production, before agreeing on the new oil production cut deal that took effect yesterday.
Brent futures for July dropped by 0.15%, to settle at $26.44 per barrel, while the June Brent contract expired on Thursday at $25.27. Meanwhile, U.S oil closed about 5% higher at $19.78, after surging above $20 earlier in the oil trading session.
After three straight weeks of oil trading losses, Brent crude had an impressive gain of about 23% when it closed at $26.40, while U.S oil surged by about 17%.
OPEC+ has agreed to reduce oil production by 9.7 million barrels per day, starting from May 1.
According to a BofA Global Research report, “Global petroleum stock builds likely peaked in April as oil demand contracted by nearly 25 million barrels per year-over-year. Now, countries are emerging from lockdown, boosting demand just when OPEC+ cuts are kicking in and producers elsewhere are cutting output.”
Even as the biggest oil production cut deal came into effect on May 1, some oil experts worry that it might not be enough as demand for oil is unlikely to recover fast.
“The production cuts are finally kicking in,” said Craig Erlam, an analyst at brokerage OANDA. “Prices are still extremely low though and the next two weeks will likely see extreme volatility return.”
Stephen Brennock of oil broker PVM said, “The demand recovery will be a muted affair. What’s more, OPEC+ curbs which take effect today will be no solution for the hefty supply imbalance.”