The world’s oil exporters have managed to hammer out a historic output cut deal over the weekend after diving crude rates forced Saudi Arabia and Russia to set aside a bruising price war. But, viruses aren’t so easily cowed.
Oil market experts say that as large and unprecedented as the 9.7 million barrels per day (mbpd) cut is, it pales in significance to the demand destruction wrought by the COVID-19 pandemic. Lockdowns to contain its spread have choked off mass transport and industrial activity across the world.
Even though oil producers not part of the Saudi Arabia-Russia led OPEC+, like the US, have agreed to make voluntary cuts, this is unlikely to make up for the drastic fall in demand. India’s 21-day lockdown, for instance, has already resulted in domestic transportation fuel demand falling by over 60 per cent so far in
“… no voluntary cuts could be large enough to offset the 19 mbpd average April-May (global) demand loss due to the coronavirus,” Goldman Sachs analysts observed in a research note.
Brent crude trends on Monday reflect the market’s lack of enthusiasm for the cut, with demand concerns wiping out all gains from a brief early spike after the deal’s announcement to over $32 per barrel. As of 6 pm IST, Brent was see-sawing between the $30-31 range it has maintained over the past week, down by a