What are your thoughts on the mandate now? The fact that OPEC+ has agreed to finally call it truce and cut production by almost around 10 per cent; what does it mean for the way oil is going to trade from here?
The message coming out of OPEC is certainly positive. One of the crucial pieces of the puzzle is now in place that you have OPEC cutting the production. Not just production cut upfront, they have also decided to cut production all the way to April 2022, which means that they are in for a long-term commitment to cut production just recognizing how bad things are in terms of demand. So it will not result in prices going back immediately but it will provide some floor to the prices as we go through the crisis. But as the demand recovers, we may see oil prices recovering to more normal levels.
What will be interesting beyond OPEC and yet can provide further support to oil prices is the data coming out of non-OPEC members as to how much production cut we are looking at there. The demand for oil currently is probably down by at least 20 per cent from where we were or maybe even more. So a 10 per cent production cut from just OPEC alone will not balance the market. The market will require production cuts from other oil majors, non-OPEC members including the United States and that is what we will need to look out for beyond OPEC.
In the near term, are we going to see a sentimental rebound in prices nonetheless? I know that the deal will not take effect up until May 1 but the trade on crude of course would jump up ahead?
We have gone through a month where the production was much higher than what it was in 2019 and we had demand that was severely lower. So we have seen storages getting full and therefore any sort of price rebound will take a little bit of time. Let us not forget that the production cut is with effect from May 1; so we are not yet there. There would be a sentiment-driven upward pressure but that will not last very long as we see the inventory data coming in. What will help prices is if we start seeing production cut from non-OPEC members. What will also help is when we see light at the end of the tunnel in terms of the virus outbreak and economies re-starting.
What the OPEC decision would do is provide some sort of floor to the oil prices because if this deal was not there, we could have gone much lower than $20 because storages were going to get full and you would not even be able to produce and some of the crude grades were being sold at negative prices. So the OPEC deal in itself will not increase prices. What it will do is, in my view, provide a bit of floor to the prices.
