The reductions for May and June were smaller than some investors and analysts had expected, and oil prices gave up earlier gains.
Published April 9, 2020Updated April 11, 2020, 6:51 a.m. ET
The Organization of the Petroleum Exporting Countries, Russia and other countries reached a tentative agreement on Thursday to temporarily cut production.
OPEC and the other oil-producing countries agreed to cut 10 million barrels a day — about 23 percent of their production levels — in May and June, they said in a statement on Friday. Possible further trims could come from a meeting of the Group of 20 nations on Friday.
Negotiations hit a snag late Thursday over Mexico’s reluctance to cut its share of oil, reportedly 400,000 barrels a day, leaving the deal in limbo. In the statement, the group said the deal was conditional on Mexico’s consent.
Even before that happened, oil prices fell because analysts and traders had hoped for a bigger reduction to prevent the buildup of a glut of oil. On Thursday afternoon, the West Texas Intermediate crude future contract, the American benchmark, was down more than 7 percent to $23.28 a barrel.
Amrita Sen, chief oil analyst at Energy Aspects, a research firm, said markets would not be impressed by the deal.
“In a nutshell, the demand declines are going to be greater than the production declines,” said Ms. Sen. She estimated that demand would be down 25 million barrels a day, or about one-quarter of normal consumption, in April.
In addition, the new cuts won’t begin until May, allowing oil supplies to increase. There are also doubts about whether some of the countries party to the cuts, like Iraq, which often produces whatever it can, will really observe them. Ms. Sen said that OPEC and its collaborators were largely doing what they would be forced to do anyway.
“With the sharp decline in demand,” global producers will be forced shut down some production “because we will run out of storage space, “ she said. “OPEC-plus is simply codifying what they would have had to cut anyway.”
Still, the meeting appears to be at least a start at tackling the most serious problem the oil industry and OPEC countries have encountered in decades. The decision to cut might go some way toward assuaging growing tensions between members of the cartel and the United States.
The meeting was called by Saudi Arabia, OPEC’s de facto leader, after President Trump spoke to Crown Prince Mohammed bin Salman, the kingdom’s main policymaker.
Mr. Trump said Thursday afternoon that he thought the oil cartel would soon reach a deal, noting that he had just spoken to President Vladimir Putin of Russia and King Salman of Saudi Arabia. He said it was in the interest of all oil-producing countries, including the United States, to rein in production.
“The numbers are so low that there will be layoffs all over the world,” Mr. Trump said at a White House news conference, in an apparent reference to oil prices. “There will be certainly layoffs in this country, and we don’t want that to happen.”
The Saudis have been engaged in a price war with Russia after Moscow refused to go along with a Saudi proposal in early March to trim output to address a sharp drop in demand because of the coronavirus pandemic. The spat threatens to swamp oil markets, including those in the United States, with excessive supplies of crude.
OPEC’s secretary general, Mohammad Barkindo, acknowledged in his introductory remarks that the glut of oil had put his organization in a weak position. The Saudis, for instance, have loaded huge volumes of crude onto tankers but are said to be having trouble finding buyers for all the oil.
“Our industry is hemorrhaging; no one has been able to stem the bleeding,” he said, according to text of his remarks posted on the OPEC website. “It is imperative we take urgent action.”
Some producers in the United States also face difficulty selling and storing oil. Analysts from Wood Mackenzie, a research firm, said during a webinar on Thursday that storage tanks at Cushing, Okla., probably the most important such location in the United States, were filling at record speeds, putting pressure on prices.
With the industry in the United States threatened with job losses and bankruptcies, the Trump administration has been pushing the Saudis and Russians to cut. In an interview Thursday on CNBC, the energy secretary, Dan Brouillette, said that OPEC and its allies “can easily get to 10 million, perhaps even higher, and certainly higher if you include the other nations that produce oil, nations like Canada, Brazil, others.”
The U.S. oil industry and the Trump administration have so far brushed off the idea of engaging in coordinated cuts with OPEC and Russia, but American producers are already contributing to production trims. Mr. Brouilette said that the steep fall in demand because of the pandemic would lead to a reduction of production in the United States of two million barrels a day by the end of the year. With storage space “running out, at some point everyone is going to cut production,” he said.
Updated April 11, 2020
When will this end?
This is a difficult question, because a lot depends on how well the virus is contained. A better question might be: “How will we know when to reopen the country?” In an American Enterprise Institute report, Scott Gottlieb, Caitlin Rivers, Mark B. McClellan, Lauren Silvis and Crystal Watson staked out four goal posts for recovery: Hospitals in the state must be able to safely treat all patients requiring hospitalization, without resorting to crisis standards of care; the state needs to be able to at least test everyone who has symptoms; the state is able to conduct monitoring of confirmed cases and contacts; and there must be a sustained reduction in cases for at least 14 days.
How can I help?
Charity Navigator, which evaluates charities using a numbers-based system, has a running list of nonprofits working in communities affected by the outbreak. You can give blood through the American Red Cross, and World Central Kitchen has stepped in to distribute meals in major cities. More than 30,000 coronavirus-related GoFundMe fund-raisers have started in the past few weeks. (The sheer number of fund-raisers means more of them are likely to fail to meet their goal, though.)
What should I do if I feel sick?
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
Should I wear a mask?
The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.
How do I get tested?
If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.
How does coronavirus spread?
It seems to spread very easily from person to person, especially in homes, hospitals and other confined spaces. The pathogen can be carried on tiny respiratory droplets that fall as they are coughed or sneezed out. It may also be transmitted when we touch a contaminated surface and then touch our face.
Is there a vaccine yet?
No. Clinical trials are underway in the United States, China and Europe. But American officials and pharmaceutical executives have said that a vaccine remains at least 12 to 18 months away.
What makes this outbreak so different?
Unlike the flu, there is no known treatment or vaccine, and little is known about this particular virus so far. It seems to be more lethal than the flu, but the numbers are still uncertain. And it hits the elderly and those with underlying conditions — not just those with respiratory diseases — particularly hard.
What if somebody in my family gets sick?
If the family member doesn’t need hospitalization and can be cared for at home, you should help him or her with basic needs and monitor the symptoms, while also keeping as much distance as possible, according to guidelines issued by the C.D.C. If there’s space, the sick family member should stay in a separate room and use a separate bathroom. If masks are available, both the sick person and the caregiver should wear them when the caregiver enters the room. Make sure not to share any dishes or other household items and to regularly clean surfaces like counters, doorknobs, toilets and tables. Don’t forget to wash your hands frequently.
Should I stock up on groceries?
Plan two weeks of meals if possible. But people should not hoard food or supplies. Despite the empty shelves, the supply chain remains strong. And remember to wipe the handle of the grocery cart with a disinfecting wipe and wash your hands as soon as you get home.
Can I go to the park?
Yes, but make sure you keep six feet of distance between you and people who don’t live in your home. Even if you just hang out in a park, rather than go for a jog or a walk, getting some fresh air, and hopefully sunshine, is a good idea.
Should I pull my money from the markets?
That’s not a good idea. Even if you’re retired, having a balanced portfolio of stocks and bonds so that your money keeps up with inflation, or even grows, makes sense. But retirees may want to think about having enough cash set aside for a year’s worth of living expenses and big payments needed over the next five years.
What should I do with my 401(k)?
Watching your balance go up and down can be scary. You may be wondering if you should decrease your contributions — don’t! If your employer matches any part of your contributions, make sure you’re at least saving as much as you can to get that “free money.”
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