Historic OPEC+ Production Cut Agreement Reached
April 13, 2020
Over the weekend OPEC+ did get to a historic 9.7 million bpd production cut. The length of the agreement is longer than originally expected according to Nigeria. 9.7 million bpd from May 2020 through June 2020. 8 million bpd July 2020 through December 2020. 6 million bpd January 2021 thru April 2022. Price for crude oil did open higher as Sunday night trading started but have eased back. The longer than expected time frame for the cuts has help support price further into the future. The near term impact of this deal is likely minimal as the demand destruction from the coronavirus has been massive and there is still not end in sight and what the ultimate impact could be. But the production cut does give hope and will allow the market to buy time to try and work itself through the issues of this unprecedented time.
Reuters reported yesterday some comments from Goldman Sachs, which said that oil prices will continue to fall in the coming weeks, reasoning the OPEC+ deal was “historic yet insufficient.”
Energy Aspects said, “Even if these cuts provide a floor to prices, they will not be able to boost prices given the scale of inventory builds we are starting at.”
The Baker Hughes Rig Count said that oil rigs were done 58 to a total of 504 rigs, which is 329 less than last year at this time when the total was 833.
Bearish for energy prices, the Bureau of Labor Statistics reported Friday morning that the next change of -701,000 jobs lost in March from February. This is much more than the 150,000 net jobs loss change expected by economist and bearish for US equites. The Bureau of Labor Statistics further reported that the unemployment rate rose to 4.4% and that the labor force participation rate fell to 62.7%.
Also, on the bearish news front is the report for US initial unemployment claims which came in at the highest on record, which is over 6.6 million for the week ending March 28th. Economist expected half of this number.
EIA reported on 04/08/20 that refinery utilization capacity fell by a massive 6.7% down to a total of 75.6%, a much lower rate than last year’s 87.5% and lower than 2 years ago at 93.5%.
Refinery runs (inputs) fell last week down to a total of 13.634 million bpd for the week ending April 3rd. Refinery runs are much lower than last year and 2-years ago due to the coronavirus.
Refinery runs (inputs) last year were at 16.100 million bpd and 2-years ago were at 17.019 million bpd for the same week.
Product supplied by refineries (implied demand) fell dramatically for gasoline by 1.6 million barrels but only fell slightly for distillates. Both gasoline and distillate implied demand remain below normal versus last year’s cumulative implied demand to date. Gasoline demand is mainly much lower due to consumers at home and not driving their vehicles to work or other recreational places.