OPEC cuts 10 cuts deep, oil unimpressed

OPEC+ pledged to cut crude production by 10 million barrels per day starting in May as part of a global effort to balance the market. The Fed also delivered yet-another lending program, adding $2.3 trillion more on a day when US jobless claims rose by another 6 million. The dollar lagged while AUD led the way.

The war within OPEC ended Thursday as Russia and the group all pledged to lower production by 10 mbpd from April levels. Importantly, that cut includes the extra supply that's in the market this month, so it's not 10 mbps from Q1 levels. The deal is just for May and June but there is a tentative plan to cut from June to year end by 8 mbpd and 6 mbpd from Jan to April 2022.

The moves will go some ways towards balancing the oil market but the reaction in crude was telling. It peaked on the day at $28.36 on chatter about a 20 mbpd cut then fell to $23.19 to close near the lows of the day.

OPEC is looking for non-members to pledge to cut another 5 mbpd and the G20 will be tasked with that Friday. As always with the G20, commitments are soft.

In any case, the market remains easily oversupplied by 20 mbpd and more-likely 30 mbpd, so it will fall on the private market to do the rest – voluntarily or otherwise. There is no clearing price for crude once storage is full and there was a report Thursday of 25 oil tankers floating offshore in Europe. They had been expected to deliver crude but were asked to wait because refineries don't have anywhere to put it.

Ultimately, this looks like a great political move that will shield OPEC and Russia from further criticism. They cut by 22% and until the rest of the world does the same, oil price are now their problem.

In the US, the huge jump in jobless claims was overshadowed by a series of new Fed programs, including one that will buy junk debt and another that will offer four year loans at 2.5-4% for 'main street' firms with less than 10,000 employees and $2.5B in annual revenue. The announcement gave a small lift to risk trades but was a big anchor on the dollar.

Gold rose $35 to $1684 and is now within easy striking distance of the March high. It also may have carved out an inverse head-and-shoulders pattern.

The EU also tentatively revealed a coronabond program. Without getting into the details, the takeaway is that government and central bank programs have crossed some new and extreme thresholds and that broad currency debasement is slowly becoming a reality.