What’s happening: Crude oil futures settled lower on Thursday, after a strong rally earlier in the session, even after news of a ceasefire between Saudi Arabia and Russia.
What happened: After rallying as much as 13% earlier in the session, WTI (West Texas Intermediate) crude oil dipped more than 9% on Thursday. Oil prices cooled off even with reports of the world's largest oil producers, Saudi Arabia and Russia, reaching a historic deal on production cuts.
The OPEC+ meeting met with unexpected hurdles as another country objected to product cuts.
Details: OPEC and its allies, known as OPEC+, met on Thursday to forge a deal to cut output in a bid to control an oversupplied market and lift oil prices. Saudi Arabia and Russia agreed to a historic deal to cut their production by 10 million barrels per day, as the coronavirus outbreak continues to weaken the demand for crude.
During the meeting, Mexico rejected the proposed production cuts and the meeting closed without any definitive agreement. Talks are expected to continue today, and delegates aim to convince Mexican officials to agree to the deal.
Why it matters: The OPEC released a statement with details of the proposed production cuts, but added that the deal is conditional upon Mexico’s consent. The OPEC said that production would be cut by 10 million barrels per day in May and June, followed by a reduction of 8 million barrels per day for the rest of the year. The cuts would be tapered to 6 million barrels per day from January 2021 and till April 2022.
OPEC+ had reportedly asked Mexico to lower production by 400,000 barrels per day, but Mexico’s Secretary of Energy Rocío Nahle said after the meeting that the country is prepared for a production cut of only 100,000 barrels per day for the next two months.
Crude oil tumbled on Thursday with investors fearing the cuts may not be enough to offset the worsening demand. US WTI crude dipped over 9% to settle at $22.76 per barrel on Thursday, after surging as high as $28.36 per barrel earlier in the session. Brent crude declined 4.1% to settle at $31.48 per barrel, after reaching a high of $36.40 per barrel.
Oil now trades at its lowest level in around two decades, with WTI and Brent crude declining more than 50% in March.
What to watch: Energy ministers from the G20 economies will hold a virtual meeting today to decide on production cuts. Investors will be keeping an eye on the minutes of the meeting and hope that Mexico clears the deal.