Oil prices turned negative on Monday, erasing gains made after major producers agreed record global output cuts, pressured by concerns that the cuts will not be sufficient to head off oversupply as the coronavirus pandemic hammers demand.
After four days of wrangling, the OPEC+ group of oil producers, comprising the Organization of the Petroleum Exporting Countries, Russia and other countries, agreed to cut output by 9.7 million barrels per day (bpd) in May and June, representing about 10% of global supply.
Brent crude futures were down 52 cents, or 1.7%, at $30.96 a barrel by 0810 GMT after opening at a session high of $33.99. U.S. West Texas Intermediate (WTI) crude futures fell 12 cents, or 0.5%, to $22.64 but was oscillating in and out of positive territory.
"What this deal does is enable the global oil industry and national economies and other industries that depend upon it to avoid a very deep crisis," said IHS Markit Vice Chairman Daniel Yergin.
U.S. President Donald Trump praised the deal, saying it would save jobs in the U.S. energy industry.
Saudi Arabia, Kuwait and the United Arab Emirates volunteered to make cuts even deeper than those agreed, which would effectively bring OPEC+ supply down by 12.5 million bpd from current levels, the Saudi energy minister said.
However, analysts cast doubts on producers' likely compliance with the cuts.
Even at full compliance, demand weakness concerns capped oil price gains. Worldwide fuel consumption is down roughly 30% because of the COVID-19 pandemic that has killed more than 100,000 people worldwide and kept businesses and governments on lockdown.
"We expect the OPEC+ decision at best to establish a floor under the market," said Harry Tchilinguirian of BNP Paribas, adding that oil price gains could also be capped by hedging by producers.
"We do not expect a sustained recovery in the oil price until pent-up demand is released in Q3," he said.
The deal had been delayed since Thursday after Mexico balked at the cuts it was asked to make. The OPEC+ group met on Sunday, resulting in a cut four times deeper than the previous record reduction in 2008.
OPEC+ has also said it wanted producers outside the group, such as the United States, Canada, Brazil and Norway, to cut a further 5 million bpd.
Canada and Norway signalled a willingness to cut. The United States, where antitrust legislation makes it hard to act in tandem with groups such as OPEC, has said that low prices mean its output would already fall by as much as 2 million bpd this year without planned cuts.
Brent's contango, the market structure when later-dated prices are higher than prompt supplies , widened, highlighting some optimism over the longer-term impact of the OPEC+ cuts but also current oversupply concerns.
"By (the third quarter), these cuts should make a difference and result in induced inventory draws for most of the rest of 2020," Citi analysts said as the bank raised its Brent price forecasts for the third and fourth quarters to $35 and $45 a barrel respectively.
Morgan Stanley has also raised its forecasts by $5 for the second half of the year to between $30 and $35 a barrel.