WTI retreats as market weighs lackluster OPEC+ cuts

NYMEX WTI futures retreated Monday, but the rest of the oil complex climbed as the market weighed the impact of a nearly 10 million b/d OPEC+ supply-cut agreement against grim global demand outlooks.

ICE June Brent settled 26 cents higher at $31.74/b, while NYMEX May WTI was down 35 cents on the day at $22.41/b.

On Sunday, the 23-member OPEC+ alliance agreed to collectively cut production by 9.7 million b/d in May and June, followed by an 7.7 million b/d reduction in the second half of 2020 and 5.8 million b/d from January 1, 2021, through April 30, 2022, in a landmark deal aimed at counteracting the plummet in global demand caused by the coronavirus pandemic.

But the agreed-to cuts are likely insufficient to balance markets in the near term, analysts said.

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Assuming almost full compliance on the cuts from core OPEC members and 50% from other participants, the agreement would result in an overall cut of 4.3 million b/d from first quarter 2020 production levels, Goldman Sachs analysts said in a note. An additional 4.1 million b/d in cuts would be needed to balance the market in May under this assumption, it said.

"Now that the OPEC+ pact reached a lackluster production cut deal, damage control by the US, Saudis, and the rest of the OPEC members will try to spin markets into believing this deal will help balance oil markets," OANDA senior market analyst Edward Moya said.

US President Donald Trump took to Twitter Monday to make the case for doubling the oil supply cuts just approved by OPEC+ to 20 million b/d, saying the move would restore the energy sector faster.

NYMEX May ULSD settled up 2.20 cents at 99.46 cents/gal and May RBOB finished 2.60 cents higher at 70.33 cents/gal.

Global crude demand is expected to decline 9.2 million b/d in 2020, according to Bank of America Global Research forecasts. Even with the OPEC+ supply agreement in place, global inventories are still expected to climb 12 million b/d in the second quarter and by 1.5 million b/d in the third quarter, BofA analysts said.

The fact that OPEC Secretary General Mohammed Barkindo stated there could be a 14.7 million b/d excess in the second quarter, which would be 5 million b/d higher than OPEC+'s headline production-cut commitment of 9.7 million b/d, demonstrates that the agreement will not balance the market, the analysts added.

Russian energy minister Alexander Novak said Friday that OPEC+ expects producers outside the group to cut another 5 million b/d of crude production in May and June, in an interview broadcast on the Russia 24 TV channel.

Non-OPEC producers, including the US, Canada, and Brazil, have to cut output by an additional 3.7 million b/d, but these cuts are likely to be the result of market forces rather than voluntary cuts.

"The demand implosion is immediate and deep, while the supply decline will likely happen in stages. As a result, the impact of the OPEC+ deal on the global oil balances could take a while to work through," BofA analysts said in a note.