OPEC+ members and allied nations, on Thursday, convened virtually to weigh options for cutting oil production.
Russia and Saudi Arabia previously opposed production cuts, which impacted oil prices. The market quickly took a dive as COVID-19 greatly reduced demand.
Coronavirus lockdowns knocked 25-percent off daily petroleum usage, equating to between 20 and 35 million barrels per day, reports Forbes.
OPEC+ members and allied nations Thursday worked to address oversupply issues sparked by the global health pandemic. Greg McBride, commodities broker with Allendale, offers insight into the latest developments.
?We know they?re going to make big cuts,? McBride said. ?From what we understand, it?s over the course of two years. They?re going to have these cuts and start to rebuild production over the course of two years, across May and through June. It sounds like they are going to cut somewhere between 10 and 12 million barrels per day.?
OPEC+ confirmed agreement on cuts of 10 million barrels per day in May and June, according to Reuters. It is still unknown how long it will take prices to recover.
McBride says production cuts should help reduce supply. However, demand problems will temporarily remain unresolved.
?It?s going to take some time. It could be a month; it could be a couple months,? McBride said. ?What these cuts do is slow down the supply gut, or building of the supply gut that we have. It doesn?t do anything for the demand side of things. You need those working in tandem to bring prices back up.?
McBride expects demand to pick up after the outbreak subsides.
?Once the world gets back out and starts moving again, whether that?s in May or June, that?s when we can start to expect the demand side of the equation (to) start to pick up steam and bring these prices back up,? McBride said. ?It could be that we see the prices on the board go faster than what anybody expects, but I don?t think you can get too bullish on any one market just yet. You can see a recovery, but this is probably your best opportunity for hedging your fuel needs or buying needs, and then also looking at feed hedges.?
