The OPEC+ has agreed to reduce output by 9.7 million barrels per day for the coming May and June, after four days of talks. U.S. President Trump added pressure by threatening leader Saudi Arabia with Oil tariffs and other measures if it did not fix the market’s oversupply problem.
“The big Oil Deal with OPEC Plus is done,” Mr Trump said on Twitter on Sunday. “This will save hundreds of thousands of energy jobs in the United States. I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia. I just spoke to them from the Oval Office. Great deal for all!”
But why Oil prices didn't rally?
News of the deal briefly lifted oil prices on Monday, but those gains faded over the course of the day. Oil prices remained under pressure on Tuesday, dropping below $30 a barrel, with traders remained unconvinced that a deal to cut almost 10 percent of the world’s oil supply could prop up a market devastated by the coronavirus pandemic.
The big deal to cut oil supply may not be big enough!
Despite the size of the OPEC+ deal, the cuts could be too little and too late to compensate for the loss of up to 30 percent of global demand as economies shut down to slow the spread of coronavirus.
The market expected over 15-million-barrel cut including OPEC+ and G20. OPEC could not even cut production by 10 million.
What to expect from Oil markets next?
Oil demand has been damaged since the outbreak of Coronavirus and this was the minimum cut that the industry was expecting. The OPEC+ deal marks the latest in a series of efforts by governments and Oil nations to support the global economy in the face of the COVID-19 crisis, however, the global economy is not ready to handle high oil prices by any means, especially as the global recession is here to stay. For now, oil demand is paralyzed, and it will take time to recover.