The price of Brent crude surged by 30% this week after President Trump suggested that Saudi Arabia and Russia were close to agreeing an eye-watering 15m bpd output cut to combat COVID-19’s hit to global oil demand. We suspect markets may have over-reacted. An output cut has not been agreed yet and, even if it is, we estimate that the market will remain in a large surplus in Q2.
Turning to next week, the outcome of Monday’s OPEC+ meeting will be the key driver of prices. Given that the oil market is now expecting a large reduction in output, anything less could send prices into freefall. Otherwise, with the number of global coronavirus cases topping one million this week, market attention will remain squarely fixed on any signs that the spread of the virus is starting to slow.
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