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Drowning in supply

14 April 2020

OPEC+ has agreed to production cuts of 10 million barrels of oil per day (for two months initially) following a month long battle between Russia and Saudi Arabia to either extract as much market share from each other as possible or try to destroy the US shale industry – the reality is probably a bit of both. As the global recession induced coronavirus crisis continues to build, the associated slowing demand ensured that the price of oil was always going to fall, unless oversupply was addressed. Pre-coronavirus the world used approximately 100 million barrels of oil per day and now in the epicentre of the coronavirus crisis, global usage has fallen 35% to approximately 65 million barrels per day, so is a 10 million cut enough? Probably not – production will still outweigh demand and even though these cuts were initially promulgated last week by President Trump (for which he will claim a win for his domestic oil audience), unless there are further and deeper production cuts from OPEC+, the oil price and the US shale industry looks to be going nowhere fast.

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