By Peter Nurse
Investing.com - Oil markets slipped lower Tuesday, with investors turned their focus away from the weekend’s agreed cut in production and towards the underlying issue of a massive decline in demand.
AT 9:15 AM ET (1300 GMT), U.S. crude futures traded 4.5% lower at $21.41 a barrel, while the international benchmark Brent contract fell 2.3% to $31.02.
The emergency meeting of the Organization of Petroleum Exporting Countries and its allies, including Russia, finalized a 9.7 million-barrel cut in daily production on Sunday, the largest in its history.
However, this reduction is unlikely to have much of an impact on prices given the much bigger fall in global demand resulting from the economic shutdowns to combat the coronavirus pandemic. India, one of the world's largest importers, extended its lockdown measures for another two weeks on Tuesday, while France, Germany and the U.K. are all expected to extend their measures by at least another three weeks in the next few days.
Analysts at Goldman Sachs (NYSE:GS) predicted that advanced economies will shrink around 35% annualized this quarter from the prior three months, four times as much as the previous record set in 2008 during the financial crisis.
“While these cuts are substantial, they still fall short of bringing the market to balance over 2Q20. The stock overhang this quarter should still see prices trading lower from current levels,” said analysts at ING, in a research note.
An example of the market pressure on the price of the physical product came with the official selling prices from Saudi Arabia, the de facto leader of OPEC+, earlier this week.
Aramco (SE:2222) cut the May official selling price of its flagship Arab Light crude to Asian customers by $4.20 a barrel from the previous month, exceeding estimates for a reduction of $3.63. However, the OSP was raised for all grades to the U.S.
Attention now turns to the American Petroleum Institute which will report its measure of U.S. oil inventories after the bell, giving traders a glimpse into the extent of the demand destruction. Last month the API reported a rise in crude stockpiles of nearly 12 million barrels.