Oil prices plunged in early trade on Friday after Mexico baulked at the proposed cuts to output agreed on by the Saudi Arabia-led Organisation of Petroleum Exporting Countries (OPEC) and Russia, a group collectively known as OPEC+.
Late on Thursday, OPEC+ announced after a meeting that it had agreed to slash output by a historic record of 10 million barrels per day as demand for crude is pummelled by the coronavirus pandemic.
However, as Mexico left the meeting without agreeing to lower output, oil prices were depressed further with United States WTI crude falling 9.29 percent to $22.76 per barrel and Brent crude down 4.14 percent to $31.48 in advance of a market holiday.
OPEC+ failed to secure a final agreement to cut supply on Monday, which OPEC sources told Reuters news agency would depend on Mexico joining in.
The group also said in a statement that they expected the US and other producers to join in their effort to prop up prices hammered by the coronavirus crisis.
Discussions are due to resume on Friday when energy ministers from the Group of 20 (G20) leading economies are set to meet on Friday.
Analysts warned that the output cuts, which amount to about 10 percent of global supplies, may not be enough to offset the heavy build-up in supply due to falling demand.
“The collapse in oil prices is a result of the reality that while OPEC is cutting as expected, there is simply too much crude in the physical space for sale, with too few pipelines to move it and too few buyers to take it,” Scott Shelton, energy specialist at United ICAP, told Reuters.
But as countries record fewer new coronavirus cases and China eases movement restrictions after reporting no new domestically transmitted cases for several days, demand for oil could pick up in the near future, said Stephen Innes, Asia Pacific market strategist at AxiCorp.
“I’ve been very encouraged to see governments are moving to get people back on the streets,” Innes told Al Jazeera, adding that fundamentals are strengthening faster than expected. “Oil is going to come back into play and prices will gradually rise.”
Innes also expects discussions at the G20 meeting to result in a “resounding yes” for oil prices. Although the US has not said it will mandate output reductions, it has noted that market forces are already causing producers to pull back, as it expects its output to fall by nearly two million barrels per day by next year.
The number of US oil rigs in operation dropped by 58 this week to 504, the lowest level since December 2016.