Daily summary: The future of the oil market is still uncertain

 

Most markets have been closed today due to the holiday season. Investors attention focused on G20 meeting during which major oil producers are trying to finalize a deal to lift prices affected by the coronavirus outbreak and the price war between Saudi Arabia and Russia.

 

Yesterday OPEC + group, had made an agreement to reduce crude production by the equivalent of 10% of global supplies and announced they wanted others countries to cut production further 5%.  Mexico refused to participate in full and offered a cut of just 100,000 bpd, while OPEC is expecting four times more. Later Mexican president announced that accordingly to President Trump, US might make cuts on Mexico's behalf. The Mexican president said Trump had "very generously said to me that they were going to help us with the additional 250,000 (bpd) to what they are going to contribute." However President Trump has not confirmed whether US would join in the cuts and has instead threatened Saudi Arabia with tariffs and other measures if it fails to resolve the oil market crisis. 

"This whole agreement is hinging on Mexico agreeing to it," Saudi Energy Minister Prince Abdulaziz bin Salman told Reuters, adding he hoped it would "see the benefit of this agreement not only for Mexico but for the whole world”. If Mexico decided to sign the deal, then OPEC+ group reduce oil production by  10 million barrels per day and other 5 million bpd would be withdrawn if the others countries such as the United States joined. Norway and Canada, both outside OPEC+, are willing to lower their production.

According to the new OPEC+ deal first cuts could be expected in May-June. All members would lower their production by 23%, with Saudi Arabia and Russia each cutting 2.5 million bpd and Iraq cutting over 1 million bpd. This would be followed by additional cut of 8 mln bpd from July to December 2020 and 6 mln BPD cut from January 2021 to April 2022. Saudi Arabia and Russia decided that their cuts would both be calculated from an October 2018 baseline of 11 million bpd.

However one need to remember that even 15% cut in production still leaves a huge oversupply on the oil markets as the demand has dropped by 30%.

The Russian ruble has been strengthening since the beginning of April to reach $ 73.76 today, a level not seen since mid March. The dollar index dropped to around 99.4 on Friday and was on track to post a weekly decline after the Fed’s announcement further stimulus package worth  $2.3 trillion. Expectations that the coronavirus pandemic is reaching its peak prompted investors to seek riskier assets. So far this week, the dollar fell 1.1%.

Annual inflation rate in the US fell to 1.5% in March of 2020 from 2.3% in February and slightly lower than market expectations of 1.6%. It is the lowest inflation rate since February of 2019, mainly due to a 10.2% slump in gasoline costs (5.2% in February) and a 1.6% drop in apparel prices (vs -0.9%).  On a monthly basis, consumer prices fell 0.4%, after a 0.1% gain in February and worse than expectations of a 0.3% decline. It is the largest monthly drop since January of 2015. Core consumer prices rose 2.1% year-on-year but fell 0.1% month-over-month, its first monthly decline since January of 2010.

Trading on Easter Monday will be muted as many markets are shut for holidays. Therefore traders should expect reduced liquidity.