Oil tumbles on doubts over OPEC supply cuts

NEW YORK — Oil prices tumbled on Thursday on doubts that a deal between the Organization of Petroleum Exporting Countries (OPEC) and allies to make a record oil supply cut would be enough to offset the collapse in global fuel demand caused by the coronavirus pandemic.

OPEC and its allies including Russia, a group known as OPEC+, agreed to cut output by 10 million barrels per day from May, the group said in a statement.

Before the coronavirus outbreak hit global transportation and economic activity, 10 million bpd was about 10% of global supply.

OPEC+ expects other producers including the United States to cut another 5 million bpd. But Washington has not offered to participate, and even if it did, the combined reduction in supply would be about half the 30% worldwide fall in demand

Brent futures fell $1.36, or 4.1%, to settle at $31.48 a barrel, while US West Texas Intermediate

(WTI) crude dropped $2.33, or 9.3%, to settle at $22.76.

“The collapse in oil prices is a result of the reality that while OPEC is cutting as expected, there is simply too much crude in the physical space for sale, with too few pipelines to move it and too few buyers to take it,” said Scott Shelton, energy specialist at United ICAP.

OPEC+ had considered curbs as great as 15 million to 20 million barrels per day (bpd), or 15% to 20% of global supplies. The possibility of deeper cuts sent oil prices surging nearly 10% early in the day.

However, OPEC said it would ease output cuts between July and December to 8 million bpd and to 6 million barrels between January 2021 to April 2022.

“A lot of hope got priced into this market over the past several days,” said John Kilduff, partner at hedge fund Again Capital LLC.

OPEC+ said it would hold another video conference meeting on June 10, to assess the market. Energy ministers from the Group of 20 (G20) major economies are set to meet on Friday. —