LONDON (Reuters) - OPEC and other major oil producers were due to discuss on Thursday big output cuts in the face of a huge fall in demand due to the coronavirus crisis.
The Organization of the Petroleum Exporting Countries and other producers including Russia, a group known as OPEC+, are expected to discuss record cuts equivalent to 10% to 15% of global supplies, although demand has plunged by up to 30%.
Analysts say that, even if such record cuts are agreed, they will not be enough.
“Our updated 2020 global oil balance suggests that a 10 million barrels per day (bpd) headline cut (for an effective 6.5 million bpd cut in production) would not be sufficient, still requiring an additional 4 million bpd of necessary price induced shut-ins. While this argues for a larger headline cut of close to 15 million bpd, we believe this would be much harder to achieve, since the incremental burden would likely need to fall on Saudi Arabia to be effective.”
The bank expects OPEC+ to agree to cut 4.3 million bpd. “While clearly not enough to offset the demand drop ... (the cut) would materially lessen the risk of storage being filled and offer a smoother route to working off inventories.”
“Even if a production-cut agreement is reached, which will surely give prices a short-term boost, we believe the enthusiasm will subside at some point and the reality of the size of the demand’s imbalance will eventually hit the market.”
“The unprecedented decline in demand... means that a successful supply response is just a part-mitigant in the short term. Even if producers were to agree to an arrangement that results in short term market balance, underlying spare capacity will rise to historic levels.”
The head of the International Energy Agency, Fatih Birol, said a production cut of as much as 10 million bpd would still result in a 15 million bpd build up of crude in the second quarter.
Kirill Tachennikov, director and senior oil analyst at BCS Global Markets said: “Even if a 10 million bpd cut is agreed, it is not technically possible to achieve these numbers in less than a month, and it is not enough to offset current oversupply that is exceeding 20 million bpd as it stands. As a result, the challenges of oil storage gradually filling up is still a very real issue.”
Compiled by Ron Bousso; Editing by Edmund Blair