Oil price smashed 30pc by OPEC stoush
The price of crude oil has plummeted on fear of a price war adding to a coronavirus demand shock.
Crude oil has plummeted on fear of a price war adding to a coronavirus demand shock..
Brent crude oil futures dropped $US14.60 or 31 per cent to a four-year low of $31.020 a barrel when trade resumed early Monday after falling almost 10 per cent on Friday.
West Texas crude oil futures dropped 27 per cent to a four-year low of $30.00 a barrel.
If sustained throughout the global day these falls would be the biggest in 29 years.
Crude oil prices susbsequently bounced somewhat in extremely volatile trading, with Brent down 23 per cent at $35.07 and WTI down 22 per cent at $32.15.
The intensifying selloff came after Bloomberg reported over the weekend that Saudi Arabia plans to boost oil output next month to well above 10 million barrels a day in an aggressive response to the collapse of its OPEC+ alliance with Russia, marking the start of the first price war since 2016.
“At the same time, Saudi Arabia has privately told some market participants it could raise production much higher if needed, even going to a record of 12 million barrels a day,” Bloomberg said according to unnamed people familiar with the conversations.
“This might all just be aimed at getting Russia back to the negotiating table, but in the meantime further oil price falls look likely, with inevitable spill-overs to the high yield credit markets, in the energy sector in particular,”said NAB’s head of FX strategy, Ray Attrill.
Oil prices tumbled on Friday after Russia baulked at OPEC’s proposed steep production cuts to stabilise prices hit by economic fallout from the coronavirus, and OPEC responded by removing limits on its own production.
More than 1 million US crude contracts changed hands during the session, as the three-year pact between OPEC and Russia ended in acrimony.
“Prices plunged because the OPEC confab ended up being an epic fail on the part of all involved. Russia has clearly decided to employ a scorched earth approach to the oil market: every country for itself,” said John Kilduff, partner at Again Capital LLC in New York.
Both Brent and WTI have fallen more than 50 per cent so far this year. The number of people infected with coronavirus across the world surpassed 100,000 as the outbreak reached more countries and the economic damage intensified. Business districts began to empty and stock markets tumbled. The split between OPEC and Russia revived fears of a 2014 oil price crash, when Saudi Arabia and Russia fought for market share with US shale oil producers, which have never participated in output-limiting pacts.
ANZ senior commodity strategist Daniel Hynes said the OPEC+ alliance “looks dead.”
“Not only did the parties fail to reach agreement on further cuts to production, they failed to extend the current production cut agreement which expires at the end of March,” he said.
The agreement, which has been in place since December 2016, has managed to support prices by keeping the market relatively balanced through a tumultuous period in the oil market.
“We now see the likelihood of production rising from OPEC+ members relatively high, even before the agreement official expires,” said ANZ’s Mr Hynes.
He said Russia stands out as the most likely to ramp up in the short term, while some of the smaller OPEC producers are also expected to raise output and Saudi Arabia was a “wildcard.”
“It had warned that it wouldn’t cut production without Russia’s involvement,” Mr Hynes warned. “However it now appears the kingdom is willing to endure low prices for the foreseeable future. Saudi Aramco has already slashed prices its sells crude to foreign markets.”
ANZ’s Hynes said Saudi Arabia may be poised to return to their volume-over-price strategy.
“Saudi Arabia can produce oil relatively cheaply, with cost of production below US$20 a barrel. However, its reliance on oil revenue to fund government spending means its break-even price is even higher.”
OPEC was pushing for an additional 1.5 million barrels per day (bpd) of cuts until the end of 2020. Non-OPEC states were expected to contribute 500,000 bpd to the overall extra cut, OPEC ministers said. The new deal would have meant OPEC+ production curbs amounting to a total of 3.6 million bpd, or about 3.6 per cent of global supply. “From (April 1) all oil producers are allowed to produce as much as they like,” analysts at ABN AMRO said in a report. The Dutch bank cut its Brent oil price forecast for 2020 by 15.5 per cent to $49 a barrel from the previous forecast of $58.
The bank noted that OPEC Secretary General Mohammad Barkindo indicated there will be more informal meetings on the proposed cuts in coming weeks, however.
with Reuters