Plans to cut crude production is still tentative, Eurozone looks at coronabonds, reports Adam Button.
OPEC + pledged to cut crude production by 10 million barrels per day starting in May as part of a global effort to balance the market. The U.S. Federal Reserve also delivered yet-another lending program, adding $2.3 trillion more on a day when US jobless claims rose by another 6 million.
The war within OPEC ended Thursday as Russia and the group all pledged to lower production by 10 million barrels per day (bpd) from April levels. Importantly, that cut includes the extra supply that's in the market this month, so it's not 10 million barrels from Q1 levels. The deal is just for May and June but there is a tentative plan to cut from June to year end by 8 million bpd and 6 million bpd from Jan to April 2022.
The moves will go some ways towards balancing the oil market but the reaction in crude was telling. It peaked on the day at $28.36 on chatter about a 20 million bpd cut, then fell to $23.19 to close near the lows of the day.
OPEC is looking for non-members to pledge to cut another 5 million bpd and the G20 will be tasked with that Friday. As always with the G20, commitments are soft.
In any case, the market remains easily oversupplied by 20 million bpd and more-likely 30 million bpd, so it will fall on the private market to do the rest – voluntarily or otherwise. There is no clearing price for crude once storage is full and there was a report Thursday of 25 oil tankers floating offshore in Europe. They had been expected to deliver crude but were asked to wait because refineries don't have anywhere to put it.
Ultimately, this looks like a great political move that will shield OPEC and Russia from further criticism. They cut by 22% and until the rest of the world does the same, oil prices are now their problem.
In the United States, the huge jump in jobless claims was overshadowed by a series of new Federal Reserve programs, including one that will buy junk debt and another that will offer four year loans at 2.5% to 4% for “main street” firms with less than 10,000 employees and $2.5 billion in annual revenue. The announcement gave a small lift to risk trades but was a big anchor on the dollar.
Gold rose $35 to $1,684 and is now within easy striking distance of the March high. It also may have carved out an inverse head-and-shoulders pattern.
The EU also tentatively revealed a coronabond program. Without getting into the details, the takeaway is that government and central bank programs have crossed some new and extreme thresholds and that broad currency debasement is slowly becoming a reality.
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Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com. You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights. Ashraf's Tweet on indices here.
