Oil prices have fallen into the red as analysts warn that the production cut agreed by Opec+ will not be enough to match the slump in demand caused by the coronavirus outbreak.
Brent crude was 1.1 per cent lower at $31.40 per barrel. US crude was down 1.6 per cent at $22.05 per barrel.
The falls came despite the world’s biggest oil producers agreeing to cut output by 9.7m barrels per day in May and June.
The cut, agreed by Opec+ (the Organization of the Petroleum Exporting Countries along with Russia and other producers), is equivalent to about 10 per cent of pre-coronavirus global supply.
Many analysts have said the deal will likely prevent any further plunges in the oil price. But they say it is unlikely to cause a meaningful rise.
The Brent crude price has roughly halved this year due to a disagreement between Saudi Arabia and Russia on cuts. The spat drove Saudi Arabia to launch a price war while demand was plummeting due to coronavirus.
Callum Macpherson, Investec’s head of commodities, said the cuts are a “massive commitment”. But he said the deal “ultimately looks to fall far short of the current oversupply”.
In a sign of the muted market reaction, prices were not boosted by the US today saying its shale output will fall at a record pace in April. This will add to the effects of the Opec+ cut.
Yet Ehsan Khoman, head of Middle East and North Africa research at Japanese bank MUFG, said no productions cuts would have sufficed “to offset the unprecedented drop in demand that we have been cataloguing in recent weeks”.
MUFG’s latest estimate says oil demand will fall by 19.1m barrels per day in April and by 12.3m on average in the second quarter.
Khoman said the prospect of an oil price rally is “vanishingly slim, in our view”.