Crude oil outlook bleak despite record production cut by Opec++

Crude oil prices were highly volatile last week in anticipation of an Opec+ deal. On Sunday night the oil producers’ group agreed to a plan to slash production by 9.7 million barrels per day from May, ending the price war between Saudi Arabia and Russia.

The agreement followed four days of intense negotiations after Mexico declined to endorse the original agreement. The deal is a little less than the market expected given that Mexico has gotten off easy. The market is very sceptical that Opec+ is actually going to be able to come up with their near 10 Mbpd of production cuts.

The production restraints are set to last for about two years, though not at the same level as the initial two months. Copying the model adopted by central banks to taper off their bond buying, Opec will also reduce the size of the cuts during the course of two years. After June, the 10 Mbpd cut will be tapered to 7.6 Mbpd until end of the year, and then to 5.6 Mbpd through 2021 until April 2022.