Historic oil deal ends price war, but market to remain unbalanced

A deal to make the biggest oil supply cuts in history may not be enough to boost prices in the coming months as the COVID-19 (coronavirus) outbreak continues to decimate oil demand.

Over the Easter weekend, the OPEC+ cartel and G20 leaders including the US, Canada and Norway hammered out a rare co-operation pact that centred on plans to withhold 10% of global oil supply – equivalent to around 10 million barrels per day (bpd).

The deal put an end to the price war between Saudi Arabia and Russia following their failure to agree on a previous supply cuts deal last month, however industry experts fear the plan will not do enough to counter the demand shock caused by the pandemic.

Goldman Sachs warned oil prices would fall further in the coming weeks because the voluntary production cuts brokered by OPEC were ‘still too little and too late’ to tackle a 19 million bpd drop-off in demand during April and May.

Brent crude failed to exceed the US$36 a barrel mark reached earlier this month in anticipation of the deal, steadying at just below $32 a barrel during Monday trading. Prior to the coronavirus outbreak, the oil market began the year trading at $65 a barrel.

In addition, analysts at French investment bank BNP Paribas said the deal may ‘at best’ help to set a floor on the market’s receding oil prices before a recovery was possible later this year.