Friday, with the markets closed, oil prices continued to plummet. Fears that the historic deal to see OPEC cut global output to no avail of the latest price drop also grew. The new concerns are with Mexico who could deter the deal after pushing back on signing on to its share of cuts. This followed a long, drawn out meeting of the world’s major oil producers.
The price of Brent Crus dropped to $32 per barrel on Friday. This was even in light of news that the OPEC+ group reached a deal to end the price war. If you remember, that began between Saudi Arabia and Russia threatening to literally pump the market with more oil beyond what the current demand levels deemed.
Oil Price Is Dropping
Why did the group doubt Mexico? The country refused to sign up for a share of cuts. This would have been around 400k barrels per day. In response, Mexico said it would cut 100k per day instead. The goal right now is to reduce global oil supplies by 10%, which is roughly 10 million barrels per day. The main point of contention right now is the price of oil and the 18-year low at $22 last month.
Demand for fuel around the world dropped as much a 30% or roughly 30 million barrels per day. That was during the initial coronavirus outbreak which saw countries taking drastic steps to “flatten the curve”. But even if OPEC+ succeeds, it may not be enough to boost the price of oil with the current demand trend continuing lower.
“Such cuts, if agreed upon tomorrow, would still be too little and too late to prevent a decline in prices in coming weeks as storage capacity becomes saturated,” said analysts from Goldman Sachs.
What’s Next For OIl?
OPEC and Russian officials both say that this crisis isn’t just a 1 sided issue. All producers need to step up. “We are expecting other producers outside the Opec+ club to join the measures, which might happen … during G20,” Kirill Dmitriev, head of Russia’s wealth fund, said to a Reuters reporter.
The U.S. is also being tapped to aggressively cut output. This week, the country was invited to OPEC+ talks. However, it wasn’t completely clear as to whether or not it actually was present on a video conference.