A day before markets in the United States and Europe were due to close, April 9 was a day of heavy market activity, with rumors of a 20 million BPD cut spurting oil prices, but soon a planned 10 million BPD cut sent prices tumbling by 10 percent, with Mexico’s decision to cut output divisive. At the same time, the federal reserve unveiled a $2.3 trillion “new weapon” and gold surged more than 2%, with futures at one point testing $1,750. For the day, markets will be focused on the U.S. CPI and the evening meeting of G20 energy ministers.
OPEC + meeting makes a big mistake! Oil prices rose and fell
After seven hours of marathon talks, an emergency meeting of OPEC + oil producers on Thursday finally announced a new draft agreement to cut output.
The online videoconference of OPEC+ producers, described as “the only hope to save oil prices”, announced after the close of trading on Thursday that producers had agreed to cut production by 10m b/d for the first time in two months from May 1, 2020. 8 million BPD/solstice from July 2020; Production cuts of 6 million BPD/solstice from January 2021 through April 2022.
As for the share of cuts in OPEC + some key members, the draft OPEC + agreement details that Russia and Saudi Arabia will each cut 2.5 million BPD in May and June. Iraq will cut output by 1.06m b/d in may-june; The uae will cut output by 720,000 b/d from may to June; Kuwait will cut output by 640,000 b/d from may to June; Kazakhstan and Nigeria will each cut output by about 400,000 b/d from may to June.
In fact, this part of the agreement has been several hours before the close of the OPEC insiders leaked to the media.
Initially, Reuters quoted two sources as saying the reduction could be as high as 20 million barrels a day. As a result, the figure sparked a surge in oil prices, with U.S. WTI rising as much as 12%. Market expectations, which had been in the range of 10 million to 15 million barrels a day, have been moved to the high end of expectations.
What happened next, however, was that bloomberg quoted OPEC representatives as saying that the first round of production cuts would be only 10 million barrels a day, and immediately prices plunged. By the close, WTI was down 9.29% at $22.76 a barrel. In London, brent crude fell 4.14 percent to $31.48 a barrel.
Such gaps suggest that, first, the talks did not go as smoothly as expected, suggesting that differences remain between OPEC countries and other producers, including Russia. Second, there is still a question mark over whether such cuts will work.
Analysts say 10 million barrels is the minimum needed to stabilize the situation. Another analyst said after the OPEC announcement that while a 10 million BPD cut in supply and demand would help balance the oversupply situation in the short term, it would still be disappointing for the market, given the weak demand caused by the COVID 19 outbreak, which left the fundamentals completely out of balance. In short, today’s meeting of the group of 20 (g20) energy ministers gave only a passing mark of 60, and the market will be watching Friday’s meeting of the group of 20 (g20) energy ministers to see if they can further boost oil prices in terms of global cooperation.
Notably, the OPEC + draft made no mention of cuts by non-opec + countries, and the attitude of the us and others remains intriguing. Among other things, OPEC representatives pointed out that Mexico had not voted on the OPEC + deal and that it still opposed the deal and even threatened to withdraw.
OPEC representatives said OPEC + would not cut production without Mexico.
Mexico’s energy minister responded that his country was only prepared to cut output by 100,000 b/d. Mexico will cut oil production to 1.681m b/d in March from 1.781m b/d.
OPEC representatives also said the group would continue to implement the deal even if the G20 countries did not join in. But OPEC + wants non-opec + countries to cut output by 5 million BPD.
“OPEC + often seems to disappoint the market,” said John Kilduff, managing partner at Again Capital. “they may have tried, but they need to do more.”
Michel Salden, head of commodities at VONTOBEL asset management, said: “so far today’s ‘deal’ does not look like the dust has settled, with Opec + more likely waiting for the G20 energy ministers to reach an agreement to cut output by 5 million barrels a day on Friday. If the G20 agrees to cut production, it could be 15 million barrels a day, which is the ultimate goal of OPEC+.”
Gold surged to $1,750 as the federal reserve launched its big kill
Statistics from real-time data update site worldometers show that as of 09:55 Beijing time on April 10, there were more than 1.6 million confirmed covid-19 cases worldwide, of which 1,603,719 have been confirmed and 95,722 have died and more than 95,000 have died. More than 460,000 cases were confirmed in the United States, with 468,566 cases and 16,691 deaths.
U.S. labor department data on Thursday showed more than 15 million americans have filed for jobless benefits in the past three weeks, and new claims topped 6 million for the second straight week last week as the outbreak brought the country to a sudden halt.
The data came as the federal reserve unveiled a massive new round of stimulus measures, which spurred a surge in gold prices.
The federal reserve on Thursday unveiled a broad $2.3 trillion rescue plan to support local governments and small and medium-sized businesses, in its latest effort to protect the economy from a new pandemic. That helped relieve pressure from a dismal report on the job market.
Fed chairman colin Powell said on Thursday that all available tools will continue to be used until the U.S. economy begins to fully recover from the virus virus outbreak.
“The fed will be buying riskier bonds, which should keep this v-shaped rally going for a while,” said Edward Moya, senior market analyst at OANDA in New York. “The fed has made it clear to the markets that they are doing everything they can to support the economy.”
Spot gold surged more than 2 per cent on the news to as high as $1,690, nearing the 1700 mark, while gold futures briefly hit $1,750, a seven-year high.
Tai Wong, head of base and precious metal derivatives trading at mandi bank, said: “the fed has launched another howitzer from its Arsenal to provide a massive bailout for small and medium-sized businesses and municipalities.”
Jeffrey Halley, senior market analyst at Oanda, said buying risk aversion ahead of the weekend supported higher gold prices.
Nitesh Shah, head of commodities research at WisdomTree, said gold could rise 20 percent from its current level after various loose monetary policies and fiscal stimulus. Shah points out that a gold price of $2,000 an ounce is realistic.
For the day, the market was focused on March CPI data, the first inflation report since the outbreak.
The survey showed the market now expects the U.S. consumer price index to fall to a 1.6 percent annual rate in March from 2.3 percent a month earlier, compared with a 2.3 percent annual rate for the core measure.
Some analysts point out that, because of the outbreak, headline inflation figures will not be able to fully reflect the overall state of the macroeconomy as usual in the coming months, which can only be described as an extremely unusual state of affairs. For this reason, the inflation data will be difficult to guide the fed. Fed Chairman Jerome Powell is unlikely to raise interest rates as a new outbreak pushes up prices. For now, the next few months of inflation data will be unpredictable and frenzied. Instead of panicking or cheering, investors should see these Numbers as anomalies.