“While the cut is well beyond previous record agreements, the math remains firmly in favor of the bears,” said Robbie Fraser, senior commodity analyst at Schneider Electric.
“The deal to remove roughly 10% of global supply comes as global demand is suffering 20-30% losses, virtually guaranteeing a flood of crude and products heading into storage in the short and medium-term,” he said in a market update.
West Texas Intermediate crude for May delivery US:CL fell $2.30, or 10.3%, to settle at $20.11 a barrel on the New York Mercantile Exchange after a brief drop to as low as $19.95. Prices for the front-month contract marked the lowest finish since March 30, according to Dow Jones Market Data. June Brent crude UK:BRNM20 lost $2.14, or 6.7%, at $29.60 a barrel on ICE Europe, ending at the lowest since April 1.
Oil saw a mixed finish on Monday, with U.S. benchmark prices down, but global benchmark prices posting a gain.
While the output cuts agreed to by major producers on Sunday are “substantial, they still fall short of bringing the market to balance over 2Q20,” said Warren Patterson, head of commodities strategy at ING, in a note.
After several days of intense negotiations, members of the Organization of the Petroleum Exporting Countries and allies, collectively known as OPEC+, agreed Sunday to cut overall crude-oil production by 9.7 million barrels a day starting on May 1 through June 30 of this year.
The total cuts would decline to around 8 million barrels a day from July 1 through Dec. 31, followed by a smaller 6 million barrels in cuts from Jan. 1, 2021 to April 30, 2022.
The global economic outlook is still bearish for oil also, with the International Monetary Fund on Tuesday forecasting a contraction in the global economy at a 3% annual rate this year, followed by a 5.8% rebound in 2021. That’s a deeper recession than during the 2008-09 financial crisis. The IMF said the U.S. economy would shrink 5.9% this year.
The Railroad Commission of Texas on Tuesday held a hearing to discuss a potential 20% reduction in oil output for the state, which would equate to roughly 1 million barrels a day out of total production of around 5 million barrels a day in Texas. The state accounts for about 40% of total U.S. output.
Scott Sheffield, chief executive officer of Pioneer Natural Resources US:PXD, said during the hearing that break even costs for most independent oil producers, including finding cost, is about $25 to $26 a barrel so the industry needs $30 to survive. At that $30 price, “we’re crippled,” but at least the industry will survive, he said. Sheffield told CNBC earlier this month that the Texas RRC was expected to make its decision on April 21.
In a news release, trade group the American Petroleum Institute urged the Texas RRC to avoid intervening in the oil markets, pointing out that “producers in Texas and across the country have already reduced production to align with market conditions and a historic drop in demand without a government mandate.”
Read:Texas regulator to decide on crude output cuts
On Nymex Tuesday, prices for petroleum prices ended mixed, with May gasoline US:RBK20 up 2.4% at 72 cents a gallon, but May heating oil US:HOK20 lost 5.1% to 94.42 cents a gallon.
May natural gas US:NGK20 settled at $1.65 per million British thermal units, down 4.3%.
The American Petroleum Institute will issue its weekly report on U.S. petroleum supplies late Tuesday, with official U.S. government figures from the Energy Information Administration due out early Wednesday.
The EIA is expected to report a climb of 10.1 million barrels in crude stockpiles for the week ended April 10, on average, according to a poll of analysts conducted by S&P Global Platts. The poll also showed expectations for supply increases of 7.1 million barrels for gasoline and 1.8 million barrels for distillates.