The Organization of the Petroleum Exporting Countries (OPEC) recently announced that they plan to cut oil production by 1.2 million barrels a day. This was seen as a response to the crash in oil prices caused by the coronavirus pandemic. But many analysts are now expressing skepticism over the cuts, citing the fact that the cuts are too small and will not be enough to affect the current glut of oil in the market.
The oil industry has been hit hard by the current crisis, with prices experiencing some of the deepest drops in decades. The announcement from OPEC marked a shift in oil supply management, as the organization had previously been known to focus on production quotas in order to boost prices. Nevertheless, it appears that these new cuts may not be enough to stabilize prices and prevent further losses.
The reason for this skepticism is that the cuts are too small to make a noticeable difference in the current oil prices. With excess global supply already outweighing demand, the cuts may not make a big enough impact to sway prices in either direction. Furthermore, the 1.2 million barrels per day is a very small portion of global production, which stands at around 90 million barrels a day.
Additionally, some analysts are concerned that OPEC is taking on too much risk with the cuts. The current situation is uncharted territory, and the effects of the cuts are unknown. If the cuts are too draconian, they could end up doing more harm than good, by further slowing down the global economy that is so heavily reliant on oil.
Finally, some analysts are noting that the cuts may simply be too little, too late. With the global economy already significantly weakened by the pandemic, it is unclear if oil supply and demand will ever go back to pre-crisis levels. This could mean that the 1.2 million cut may be a fruitless move, further damaging the already strained OPEC members.
Overall, the announcement from OPEC to cut 1.2 million barrels of oil supply was not met with as much enthusiasm as the organization had likely hoped. Despite the noble intent of the cuts, many analysts are citing weaknesses in the plan, and are questioning whether it will be enough to stabilize the fragile oil market. In this current uncertain climate, only time will tell if the cuts will be enough to prevent further oil glut and stabilize prices.
