Crude prices fall after OPEC+ agrees to cut 10 million b/d

Houston — Crude prices fell late Thursday after a modest deal from OPEC+ to cut oil outputs by a combined 10 million b/d failed to convince traders the reductions are enough to offset the much larger demand collapse caused by the coronavirus pandemic.

Despite the agreement by Saudi Arabia and Russia to end their month-long pricing war, front-month WTI plunged 9% to less than $23/b. Both NYMEX WTI and ICE Brent futures hit their lowest settlements since April 1, the day before the emergency OPEC+ meeting was announced.

The eventual OPEC+ deal, which was still waiting late Thursday for Mexico to remove an objection, came up short on expectations after speculation that a broader, global deal could be reached to pull 20 million b/d from the oil markets. However, more non-OPEC countries could still agree to cut additional volumes, starting with Friday's G20 meeting of energy ministers.

The OPEC+ deal includes each participating nation cutting roughly 22% of their output with the compromise bringing both Saudi Arabia and Russia down to about 8.5 million b/d in May and June, according to sources. The deal will be for 8 million b/d of total OPEC+ cuts for the rest of the year and by 6 million b/d in 2021.

After rising as high as 13% early in the day, NYMEX May WTI settled down $2.33 at $22.76/b and ICE June Brent dipped $1.36 to $31.48/b, furthering the spread between the two crude grades.

The OPEC+ deal still represents progress and prevents benchmark prices from falling to the single digits, but it's insufficient against the loss of likely more than 20 million b/d of global crude demand, said Jamie Webster, senior director at Boston Consulting Group's Center for Energy Impact in Washington.

"It's a sideshow to the global demand collapse we're enduring," Webster said. "But that doesn't mean this is a hopeless cause. It's a great step forward to put a line under prices during this really difficult situation."

NYMEX May RBOB was down 0.07 cents to 67.73 cents/gal and May ULSD was down 3.81 cents to 97.26 cents/gal, falling below the $1 threshold.

PREVENTING AN IMPLOSION

OPEC Secretary General Mohammed Barkindo said the global oil demand collapse is "staggering" and "unprecedented," warning that global crude storage will be exhausted in May at the current pace.

Russian Energy Minister Alexander Novak called on more countries to join OPEC+ in voluntarily cutting production in a not-so-subtle nod to the US.

"All this can lead to serious consequences for the oil industry and the world economy as a whole," Novak said.

Other countries including Brazil, Canada, Norway and others could still join in on voluntary cuts. Brazil has already said it will cut by 200,000 b/d.

And, although the US may not formally join in any agreement, it is increasingly clear that US shale production is falling, including the removal of about 80 drilling rigs on the week, which is the biggest US drop since 2014.

EYES ON TEXAS

The Texas energy regulator, called the Texas Railroad Commission, is still scheduled to meet Tuesday to discuss mandatory production cuts, but any intervention is increasingly unlikely with the biggest Texas producers, including ExxonMobil, Chevron and Occidental Petroleum, all opposed. Only a handful have come out in favor of production quotas, such as Pioneer Natural Resources, Parsley Energy and Continental Resources.

Railroad Commissioner Ryan Sitton said Thursday he expects more US oil shut-ins as commercial storage space fills up by June - if not sooner. He was hoping for a bigger OPEC+ deal and for more other countries to join in, including the US.

"I think markets were expecting a bigger total cut and more global coordination," Sitton said. "Frankly, this 10 million barrels is underwhelming when the world is oversupplied by about 24 million b/d."

With 6.6 million Americans filing first-time unemployment claims last week, the US has now lost almost 10% of its workforce in just three weeks with much of the nation – and world – under stay-at-home orders, according to new numbers released from the US Labor Department Thursday.