The BP share price (LON:BP) fell sharply after a warning from the IEA the recent OPEC cuts will not be enough to reduce the over supply of oil.
The International Energy Agency said they saw oil demand falling 9% in 2020 due to the spread of coronavirus.
In the market reaction, the price of WTI oil fell beneath $20 to the lowest levels for 18 years, erasing the gains made due to the OPEC production cut.
OPEC confirmed 10 million in production cuts over the over the weekend in a historic move to reduce global oil supply.
However, the IEA has just poured cold water on the bullish impact of the OPEC supply cuts on the price of oil. Investors have seen the price of oil surpass the recent lows and take oil shares such as BP down with it.
The IEA see oil demand falling 9% in 2020 before recovering. Although the OPEC will remove some supply from the market it doesn’t go far enough to mitigate the declining demand.
The danger to the oil price is the over supply is quickly filling up storage facilities – something the IEA says could happen within weeks.
BP share price
The downbeat IEA outlook will cause concern for investors who enjoyed a sharp rally in the BP share price in the run up to the OPEC meeting.
Not only does the low price of oil put pressure on on BP’s margins, the potential reduction in demand means overall volumes of oil sold will be lower.
This will likely have a significant impact on BP’s earnings in 2020 as the lockdown to contain coronavirus destroys economic activity.
However, investors will look to the IMF’s economic outlook and should take note of the strong recovery forecast for 2021.
With the BP share price trading just above 300p, it would appear the reduction in earnings for 2020 is largely priced in and could provide upside if earnings return in 2021.
