We're In Uncharted Territory For Oil

The meeting in Vienna last week among OPEC members and their non-OPEC allies, OPEC plus, was intended to help nations reach an agreement on production cuts to extend past the current end date of April 1.

OPEC plus is currently operating on a reduction of 2.1 million barrels per day in oil production, and that lasts until April 1. OPEC proposed Thursday in Vienna to extend that cut by 1.5 million barrels per day and have it run until the end of 2020.

Oil prices had already fallen 20% since the start of the year, encouraging oil producers to push for more production cuts. The concern is the spread of the coronavirus will drive down the price further as economic activity, and in turn, oil demand slows around the globe.

But Russia was not on board.

The Saudis' response to Russia's stance was to cut its price to Chinese customers and plan to increase production by as much as 2 million barrels per day.

That fallout then led to oil's massive 30% nosedive. And on Monday, oil's decline was literal fuel to the stock market fire.

A market already suffering from news of the further spread of COVID-19 dropped 7.79% in one day and a total of 19.3% since Feb. 12.

Since Monday's losses, both oil and the stock market have recovered a bit. Oil is sitting at around $33 a barrel, and stocks rallied at open.

Now as a whole, the oil sector has already been in a difficult position – this OPEC plus news simply makes it worse. The Saudi-Russian oil war has all the earmarks of a standoff.

Unless there's a resolution, we will be retesting the market lows that we experienced in 2015 and 2016, when oil dipped below $30 per barrel.

We're also going to see a ripple effect through the economy that's going to have a parallel impact to the COVID-19 problems we already have…

What Could Happen After April

We may not get a decision on production cuts before April 1. Russia's Minister of Energy Alexander Novak told CNN that his country would make its own decision about production on that date.

1 2 3 4
View single page >> |

Disclosure: None.

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.