Oil declines as concern of steep recession counters Opec+ cut

Bloomberg

Oil erased earlier gains as the demand destruction caused by the coronavirus pandemic outweighed planned output cuts from the world’s biggest producers.
Futures fell 4.6% in New York amid persistent concerns of a massive supply glut. A key timespread on American benchmark — a gauge of the health of the market — is at its weakest level in more than a decade as speculation grows that the main US storage hub will fill to capacity.
This weekend’s Opec+ deal to slash production by 9.7 million barrels a day amounts to the largest coordinated cut in history, but is still dwarfed by the decline in oil consumption as the pandemic keeps multiple countries in lockdown. The International Monetary Fund on Tuesday predicted the steepest global recession in almost a century. With the oil market overwhelmed by supply, physical crude prices are trading far below futures contracts.
The impact of production cuts “will not be felt until May and June,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “That still leaves producers scrambling to find a buyer or facilities that can store the unwanted barrels.”
The curbs will start next month, removing almost a 10th of global output. Saudi Energy Minister Prince Abdulaziz bin Salman said that the kingdom is ready to trim production even further if needed, but will only cut if others in the alliance reduce their supply accordingly.
He also said the more bearish demand forecasts may be too pessimistic, so the alliance may not need to make deeper cuts.
WTI for May was trading more than $7 below the contract for the following month, the biggest discount since 2009. That structure — known as contango — expanded after stockpiles at Cushing, Oklahoma, rose by the most since at least 2004 last week.
The move has also been exacerbated by the US Oil Fund ETF selling its holdings of May futures and buying June. The fund will sell 37,000 futures on Tuesday, according to its website.
Texas oil regulators are scheduled Tuesday to discuss supply restrictions in response to the price crash, but KPMG International sees a low probability that cuts will be instituted. Texas pumps more oil than every OPEC member except Saudi Arabia. The US was conspicuous as a hold-out on global output curbs, instead leaving it up to individual companies to steer production decisions.