Mexico holds out against scale of reductions which would amount to 10m barrels per day, or 10% of global supplyOpec countries and allies led by Russia have agreed in principle to cut their oil output by more than a fifth and said they expected the United States and other producers to join in their effort to prop up prices hammered in the coronavirus crisis.But there was some confusion after Mexico apparently refused to sign up to its share of cuts under the deal, which would have been 400,000 barrels per day. The Mexican energy minister Rocio Nahle Garcia tweeted that her country had suggested a cut of 100,000 barrels. Continue reading...
More like this (3)
OPEC+ urges 'full conformity' with production cuts, and Saudi Arabia's energy minister warns market gamblers will be hurt 'like hell'
Summary List Placement The Organization of Petroleum Exporting Countries and its allies urged "full conformity" with...Summary List Placement The Organization of Petroleum Exporting Countries and its allies urged "full conformity" with oil production cuts at its online meeting held on Thursday. In a separate news conference, Saudi Arabia's energy minister warned that those traders who wish to short the oil market would be hurt "like hell." Saudi's Prince Abdulaziz said OPEC+ could hold an extraordinary meeting in October if oil demand worsens. "With the formerly noncompliant countries likely reducing their production and current prices being too low to support growth in the US, oil supply is likely to stay under control," a commodity analyst at UBS said. Visit Business Insider's homepage for more stories. OPEC+ emphasized on sustaining "full conformity" with oil production cuts at its Thursday meeting, which was held to review compliance targets. On the same day, Saudi Arabia's energy minister warned traders against heavily betting in the oil market, promising that those who gamble on prices will be hurt "like hell." "Anyone who thinks they will get a word from me on what we will do next, is absolutely living in a La La Land... I'm going to make sure whoever gambles on this market will be ouching like hell," OPEC's most influential minister, Prince Abdulaziz, said at a news conference, when he was asked about the organization's next steps. He said that the OPEC+ could hold an uncustomary meeting in October if oil demand worsens and COVID-19 cases increase substantially. The world's largest crude exporters discussed continued flexibility on production cuts and made no changes to the current output reduction of 7.7 million barrels per day until December, or around 8% of global demand. Analysts had not expected any additional output cuts at Thursday's meeting. Read More: Goldman Sachs says oil prices are set to move 'meaningfully higher' into next year. Here are 7 reasons why the firm is bullish, and 5 stocks it recommends buying in advance The Joint Ministerial Monitoring Committee "observed that the recovery has not been even across the world and an increase in COVID-19 cases has appeared in some countries," an OPEC statement read. "In the current environment, the JMMC emphasized the importance of being pro-active and pre-emptive and recommended that participating countries should be willing to take further necessary measures when needed." Oil prices have risen about 11% in the last week following a drawdown in US crude and gasoline inventories, and as Hurricane Sally forced one-fifth of US offshore production to shut. International benchmark Brent crude rose 0.5%, to $43, and US benchmark West Texas Intermediate rose 0.6%, to $41, on Friday. "With the formerly noncompliant countries likely reducing their production and current prices being too low to support growth in the US, oil supply is likely to stay under control," said Giovanni Staunovo, a commodity analyst at UBS. "Should oil demand continue to recover gradually as we expect, the oil market is likely to stay undersupplied," he said. UBS predicts the price of Brent to rise to $45 per barrel in the fourth-quarter this year, and hit $55 per barrel by mid-2021. Read More: 3 top investing executives lay out the biggest risks to markets heading into a volatile election season — and share their best recommendations for navigating what happens nextSEE ALSO: The Bank of England warns of an 'unusually uncertain' outlook, and policymakers are keeping negative interest rates on the table Join the conversation about this story » NOW WATCH: Epidemiologists debunk 13 coronavirus myths
Why the price of oil is continuing to free-fall after a historic supply cut — and when experts think it may finally reach rock bottom
A coalition of oil-producing countries known as OPEC Plus reached a historic deal to cut production...A coalition of oil-producing countries known as OPEC Plus reached a historic deal to cut production by nearly 10 million barrels per day earlier this month. Other countries have also agreed to curb supply. But as the market has shown, even steep cuts to supply won't prevent the price from free-falling. On Monday, US crude was hovering around $11 a barrel — the lowest level since December 1998. In recent reports, several Wall Sreet analysts explain that supply cuts won't prevent storage tanks from filling up in as few as two months. Plus, historically, countries don't fully comply with the production cuts to which they agree. Visit Business Insider's homepage for more stories. A coalition of oil-producing nations known as OPEC Plus made history on April 12, when it reached a deal to curb oil supply by 9.7 million barrels per day, dwarfing all previous cuts. It was a remarkable response to a collapse in oil demand linked to the coronavirus pandemic, which has stunted transportation. Yet as markets on Monday have shown, the OPEC Plus deal — shouldered in large part by top producers Saudi Arabia and Russia — won't prevent oil prices from freefalling. On Monday, the price of near-term WTI futures, a benchmark for US crude oil, plunged to about $11 a barrel — a more than 21-year low. The international benchmark, Brent, slid to $26.23 a barrel at intrasession lows. That suggests that even steep production cuts can't reverse the historic shock to demand, experts say. "This is clearly the largest production cut ever — and will be in real terms," Greg Priddy, director of global energy and the Middle East at Stratfor, told Business Insider. "But it's also the largest demand destruction that we've seen in modern times." But there are a handful of other reasons why oil prices continue to freefall, according to research from several industry experts. Click here to subscribe to Power Line, Business Insider's weekly energy newsletter. Production cuts on paper don't always translate The OPEC Plus alliance agreed to cut production by a record 9.7 million barrels a day (bpd), or about 10% of global supply, in May and June, after which the cuts gradually step down. That amounts to most OPEC Plus countries slashing production by 23% in the near-term. The US, Canada, and Brazil, which are not part of OPEC Plus, may also cut production by about 3.7 million bpd, Goldman Sachs analysts led by Damien Courvalin said in a note last week. These cuts are unlikely to be through a voluntary agreement, but rather via "market forces" — namely, low oil prices — that make it economical to reduce supply, Courvalin said. The unknown is whether all of these countries will actually make the cuts to which they've agreed. Courvalin said he assumed full compliance from core OPEC members and 50% from all other participants in May, when the cuts are slated to begin. That means the OPEC Plus deal would lead to an actual cut of only 4.3 million bpd, relative to production in the first three months of the year, he said. Bank of America strategists were slightly more optimistic. In a note last week, they said the actual production cut would be more like 7.2 million bpd over the first few months, relative to February. Whatever the number is, analysts are anticipating that it will fall short of the agreed-upon 9.7 million barrels. According to Priddy, that's because some of the countries will have a hard time making the cuts. Iraq, for example, agreed to cut production by 1 million bpd, yet the country owes cost-recovery payments to foreign companies that are helping them raise production, he said. "That presents them with a big dilemma," he said. "Their finances are getting hit, but they also have contracts that obligate them to pay those companies." Even with production cuts, storage will fill up fast Whether or not they're realized, production cuts on the scale of 10 million bpd are simply dwarfed by the collapse in demand. Estimates vary, but banks like Credit Suisse and Goldman Sachs expect oil demand for April to take a hit on the order of more than 20 million barrels per day, relative to last year. That stunning loss of demand means a lot of oil has nowhere to go. And the OPEC Plus cut won't stop the threat of storage tanks filling up sometime before June, analysts at Credit Suisse wrote in a report last week. Analysts at Morgan Stanley had a similar outlook. "While this helps moderate storage builds," they wrote of the OPEC Plus deal, "the market should remain oversupplied given the sheer magnitude of lost demand from the COVID-19 pandemic." They added that the US is on pace to fill storage in about two months. Meanwhile, Courvalin's team said that the agreement is "too little and too late to avoid breaching storage capacity" and that no voluntary cuts "could be large enough to offset" the demand collapse in April and May. What it means for the oil and gas industry The price of oil will fall — at least, that's one of the takeaways from a handful of reports last week. Brent crude futures, which are currently priced just under $27 a barrel, could drop below $20 in the near term, according to Morgan Stanley. They started the year closer to $70. "The global oil market will have the largest spare capacity in at least a decade, leading to a flatter Brent crude oil curve," Bank of America analysts wrote. "As the dust settles, it could also potentially leave oil prices lower for longer." How much longer? Goldman Sachs expects "a gradual recovery" in Brent prices, reaching $40 per barrel by no earlier than October, at which point it said inventories would start to wind down. A consequence of low oil prices is that companies shut-in wells — in other words, they turn off the tap. Really cheap oil can mean that some wells aren't economical anymore, even if shutting them down can cause permanent damage to the supply. Morgan Stanley analysts estimate that about 2 million barrels of oil will be shut in as a result of the pandemic. "Producers have already begun to announce shut-ins, and we expect more will follow," the bank's analysts wrote. Indeed, the oil giant Continental Resources has already announced that it's curbing production by 30% for April and May, they said. Meanwhile, ConocoPhillips said it would curb production by 225,000 gross barrels of oil per day. It's these market-driven cuts to production in the US that will likely help rebalance the market — but not before companies slash their capital spending and lay off staff to adjust to those changes. Read more: How 18 oil giants from Exxon to Halliburton are cutting staff and slashing spending in response to the historic oil price meltdown "There are still going to be a lot of layoffs in the shale patch," Priddy said. "This is still something that is going to hammer the industry." This story was originally published on April 13. It was updated with recent changes to the oil market. Join the conversation about this story » NOW WATCH: We tested a machine that brews beer at the push of a button
The multiweek oil-price war between Russia and its OPEC allies was finally resolved on Sunday as...The multiweek oil-price war between Russia and its OPEC allies was finally resolved on Sunday as the international consortium agreed to cut global crude oil production by almost 10%. OPEC+ announced it will slash production by 9.7 million barrels a day for May and June. That's more than four times the cuts approved during the last financial crisis. WTI crude oil climbed 6.5% to $24.32 a barrel at 9:15 p.m. in New York, while Brent crude increased 3.7% to $33 a barrel. Watch oil trade live on Markets Insider. The multiweek oil-price war between Russia and its OPEC allies has finally been resolved. The international consortium agreed on Sunday to cut global crude oil production by almost 10%. OPEC+ announced it will slash production by 9.7 million barrels a day for May and June, roughly in line with the 10 million figure that was floated late last week. WTI crude oil climbed 6.5% to $24.32 a barrel at 9:15 p.m. in New York. Futures surged as much as 9% shortly after opening at 6 p.m., but quickly reversed course and traded as much as 4% lower for a stretch. Brent crude rose 3.7% to $33 a barrel. The historic accord comes after four days of tough negotiations. It also marks the biggest oil-production cut on record, coming in at more than four times what was approved during the last financial crisis. Read more: Goldman Sachs says buy these 12 stocks set to deliver market-beating sales growth as coronavirus crushes businesses Also as part of the agreement the US, Brazil, and Canada will contribute an additional 3.7 million barrels on paper amid a production decline, while other Group of 20 nations will offer 1.3 million, Bloomberg reported. Further, production cuts will persist beyond the initial two-month period, albeit at a tapered pace. After June, it will be decreased to 7.7 million barrels a day through year-end. Then it will be cut again to 5.8 daily barrels from the start of 2021 through April 2022. The deal goes into effect on May 1. The agreement marks the end of a price war between Russia and primarily Saudi Arabia that transpired at a time when the global coronavirus outbreak was already sapping demand for oil. By threatening to boost production and flood the market with cheap oil, the warring sides pushed prices for WTI crude prices down as much as 67% year-to-date. The commodity plunged more than 50% in March alone. President Donald Trump tweeted about the deal on Sunday. "The big Oil Deal with OPEC Plus is done," he said. "This will save hundreds of thousands of energy jobs in the United States." Trump continued: "I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia. I just spoke to them from the Oval Office. Great deal for all!" Read more: 'Don't be stupid right now': The legendary author of 'Rich Dad, Poor Dad' breaks down why a coronavirus-led depression is inevitable — and shares the 3 investments he's making to stay safeJoin the conversation about this story » NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption