Comment on OPEC+ compromise with Mexico from two Rystad Energy analysts:

Bjornar Tonhaugen, Head of Oil Markets:

On a positive note, OPEC+ today managed to reach a historic deal to make the single largest output cut in history, after a compromise was reached with Mexico.

However, even though OPEC+ has decided to attempt to bail out the global oil market, the group has unfortunately only come up with half of the ransom money. We believe the market’s disappointment will reflect in prices already from April due the lack of size and the speed of the supply removal.

At least the global oil market may not exhaust the storage capacity as early as it would without the voluntary production cuts.

The oil market will see enormous stock builds in April as the deal is only in effect from 1 May, while gradual shut ins and production declines will already happen during the current month.

We believe oil prices will see renewed downwards pressure. Further down the line, however, this deal may be bullish as OPEC+ plans to endure with the 6 million bpd cut through 2021, when oil demand most likely will have recovered back to normal and as supply capacity will have sustained a lasting damage.

Per Magnus Nysveen, Head of Analysis:

This is at least a temporary relief for the energy industry and for the global economy. This industry is too big to be let to fail, and the alliance showed responsibility with this agreement. Even though the production cuts are smaller than what the market needed and only postpone the stock building constraints problem, the worst is for now avoided.

The rest of oil producing countries should also prepare to cut output to align with domestic refineries and fuel consumption, which is expected down globally by 27 million bpd in April and 20 million bpd in May.