Oil Swings Sharply as OPEC Agrees to Cut a Third of Demand Lost to Covid-19

By Barani Krishnan 

Investing.com - Oil prices swung wildly -- rising 12% in early trade, then settling 9% lower, before paring losses in post-settlement trade -- as the OPEC+ alliance reportedly agreed to a 10 million-barrel-per-day output cut by June that would still cover only a third of the demand estimated lost to the coronavirus pandemic. 

West Texas Intermediate, the New York-traded benchmark for U.S. crude, was down $1.84, or 7.3%, at $23.25 by 4:45 PM ET (20:45 GMT). WTI had settled at $22.76 earlier, down $2.33, or  9%, on the day. The session high was $28.33.

Brent, the London-traded global benchmark for crude, was off 96 cents, or 2.9%, at $31.88. It finished the official trading session at $36.68, down $1.36, or 4.1%. Brent’s peak for the day was $36.38.

Oil pulled back some losses after The Wall Street Journal reported that the OPEC+ alliance will cut 10 million barrels per day of production by June, with Saudi Arabia and Russia contributing more than half of that.

Riyadh will cut 3.3 million bpd and Russia 2 million bpd, the Journal said.

Analysts said the demand loss from Covid-19 was between 20 million and 30 million bpd.

With the coronavirus pandemic reducing the big fanfare of the typical OPEC meeting in Vienna to a mere video hook-up, oil ministers from the Saudi-led cartel had to be content with a virtual meeting with their Russian and other allies. 

That also complicated the job of reporters, who instead of hogging the stairwell of the OPEC building in the Austrian capital to gang-press delegates coming out of the meeting room, had to communicate electronically with them and other sources to know what was going on.

Without an official communique or news conference, the reporting that emerged was as mixed as one could imagine, sending traders in all directions. 

As though things weren’t complicated enough, there were reports late in the day that Mexico, a smaller rival to the U.S.-sanctioned Venezuela but a significant oil producer, nevertheless, opposed any cuts to its already dwindling production.  

Mexico’s state oil company Pemex was reported to be sticking to plans to boost production, and doubling the number of its newly-drilled wells this year to 423, amid consistent declines in its oil production over the years.

“There are just so many conflicting versions coming out of today’s meeting that it’s not surprising at all that we’re back in the negative after jumping 12% earlier,” said Tariq Zahir at the oil-focused Tyche Capital Advisors in New York.

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