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US Crude Less Than $ 11 .. Why Did The "OPEC +" Agreement Fail To Save Oil Prices?

US Crude Less Than $ 11 .. Why Did The "OPEC +" Agreement Fail To Save Oil Prices?

The world oil prices are witnessing dramatic declines and the US crude price has fallen to less than $ 11 a barrel during trading on Monday, with the American oil stocks filled and the sharp decline in demand.

The world oil prices are witnessing dramatic declines and the US crude price has fallen to less than $ 11 a barrel during trading on Monday, with the American oil stocks filled and the sharp decline in demand.

Oil experts and analysts expected that the price of crude oil will range between 30 and 50 dollars during the remainder of 2020, with the continued decline in demand, the uncertainty about the timing of controlling the consequences of the emergence of the emerging coronavirus, and doubts about the possibility of agreeing to an additional reduction in production.

Experts and analysts who spoke to Masrawi attributed the failure of the agreement to reduce oil production concluded by the group of oil-producing countries and their allies "OPEC +" two weeks ago, in increasing oil prices after a violent fall due to a price war, to the need for additional production cuts, which is difficult to happen alongside the great abundance Currently stocks with a sharp decline in demand, due to SK.

OPEC and its allies, led by Russia, in what is known as "OPEC +", agreed on Sunday, before an unprecedented reduction in oil production, equivalent to about 10% of the global supply, to support crude prices in light of the Coronavirus pandemic, after pressure from US President Donald Trump Saudi Arabia and Russia should return to negotiate and save the oil market.

The agreement comes after a price war between Russia and Saudi Arabia that led to a drop in oil prices by more than half compared to oil prices at the beginning of the year.

The group "OPEC +" said it agreed to reduce production by 9.7 million barrels per day in May and June, in the largest-ever cut in oil production, as it exceeds four times the reductions agreed during the financial crisis in 2008.

But despite that agreement, the prices, which witnessed some increase in the first 3 days of this month with the start of the American president's pressure, fell again after the announcement of the agreement, and American crude was the most affected by this decline, which fell sharply by about 40% during today's trading to the level of 10.75 Dollars a barrel.

The price of a barrel of Brent global crude during trading today amounted to about 26.55 dollars, according to the latest updates according to Bloomberg Network data, down by 5.45%.

Why did the historic agreement fail to contain prices?
Medhat Yusef, former vice president of the Petroleum Authority, attributed the sharp decline in oil prices to the huge availability of oil in light of increased production during the period before the agreement to reduce production with the escalation of the price war, which coincided with the case of weak global demand due to the implications of the Coronavirus on Economy.

Youssef Lamsraoui said that large quantities of oil were stored during the last period with increased production in Saudi Arabia and OPEC countries, in the context of the price war and also to counter the shale oil industry, which will delay the emergence of the impact of the agreement to reduce oil production for a period of time, which may be prolonged due to the recession Global economic.

The decline in demand also had a big role due to the corona’s consequences, as Shamil Hamdi, a former undersecretary at the Ministry of Petroleum, told Masrawy that the agreement to reduce production by about 10 million barrels would not have a major impact alone on prices without an additional reduction in the same quantity, due to the decrease Sharp in demand.

He added that the demand for oil decreased by about 20 million barrels per day during the recent period with the repercussions of the spread of the Coronavirus, out of 100 million barrels, and this gap must be covered to affect prices.

Hamdi said that the repercussions of the crisis of the spread of the Coronavirus led to a significant decline in oil consumption with the decrease in air traffic, movement of cars with a reduction in wandering, and the production of factories, which declined, especially in a number of countries with high oil consumption, such as the United States, China, and Europe.

He continued: "In the past, when demand was declining in the market by the amount of a million or a million and a half barrels per day, prices were affected and OPEC would meet and reduce production by the same amount to remedy the situation ... But the demand has declined very large this time and reached 20 million barrels at once and thus despite the fact that the last agreement On a historic production cut, it is not enough. "

Noaman Khaled, a macroeconomic analyst with CI Capital Asset Management, agreed with Shamil Hamdi that the biggest problem is more about demand than supply.

Noaman Khaled told Masrawy, that the significant decline in oil prices recently due to a vision over a period of 6 months, a significant decline in demand due to the cessation of aviation, production and economic activity in various countries of the world.

According to Medhat Youssef, the impact of American crude prices is much greater than Brent crude due to the presence of a large abundance in stocks in the United States with the halt of its economy, which is the largest consumer of oil in the world, in addition to a problem in storage capacities there with the exploitation of large areas of them in the current period.

Youssef stressed that the increase in the difference between the prices of Brent crude and the American crude during the recent period is due to the different nature of the market for each crude, and the conditions experienced by each market, and the export conditions and others.

What are the expectations for the future of oil prices?
Medhat Youssef expected that oil prices, especially Brent crude, will continue to fluctuate during the coming period with its trend to rise, but slightly with the start of the agreement to reduce oil production to enter into force in the first of May so that the barrel will be traded at levels between 30 and 35 dollars.

Youssef said that the future demand for oil is expected to increase during the coming period, compared to its current levels, and with the supply diminishing in the implementation of the agreement, prices are expected to rise, but the rate of increase depends on the extent of improvement in global trade rates and economic activity and out of the current recession.

Noman Khalid expected that the price of a barrel of Brent crude oil will range between 30 and 40 dollars until the end of 2020.

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