Global Oil War Comes to a Close:

Last Thursday, April 9th, twenty-three countries met led by Russia and Saudi Arabia, in efforts to end the “oil war” that had been in full swing since early March. On that day, production cuts were initially rejected by Mexico, but come April 12th, the deal was finalized. OPEC+ nations are to reduce output by 9.7m barrels per day in the months of May and June, or about 10% of global output. The countries, while not required to as per the deal, are likely to honor these cuts for the remainder of April, as there is nothing to increase demand. President Trump announced today that we are really looking at is closer to 20m barrels per day, double the original target. Still, this likely is not even enough.

Low prices and fixed production numbers came into effect upon Coronavirus killing demand. Between stay at home orders and nonexistent travel, global oil demand is estimated to have fallen by a third. Even if we are looking at 20m barrels per day cut between international trade deals, this doesn’t fill what could be up to 35m b/d that the virus is stated to be devouring. With nobody taking family vacations or commuting for work at the moment, not even this low price will spur demand, and that is why we see in Monday’s trading, that the production cut is likely a nonfactor for the time being. But hey, at least I can continue filling up my Celica for $30.

On the bright side: the bleeding is slowed for the time being. Production cuts alone may not be driving up the price, but they have effectually created a price floor for international oil. This could be what is required for private producers in North America and across the globe to stay in business, as it may buy them the time to pray this all comes to an end. For now, the deal is a good thing, but it is a single won battle in a war with countless more conflicts on the horizon.

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