What’s happening: Oil prices plummeted more than 10% to a three-year low, after a week of high volatility.
What happened: Oil prices have been on the decline due to concerns over the impact of coronavirus on the global economy and are down almost 50% year to date.
News of OPEC+ talks having collapsed and Saudi Arabia starting what seems to be a price war with Russia exerted further pressure on oil prices. Friday also marked the worst day in five years for WTI crude, while Brent crude touched its lowest level in three years.
Why oil prices declined: In a bid to support oil prices, the OPEC (Organization of the Petroleum Exporting Countries) had suggested lowering production by an additional 1.5 million barrels per day starting next month until the yearend. The proposal was dependent on support from non-OPEC members, including Russia. Moscow refused to support the additional cut, saying that the outbreak impact on global demand was too early to calculate. The failure of OPEC and Russia to reach a deal for production cut sent oil prices to the lowest level since 2016.
US WTI (West Texas Intermediate) crude oil dipped to a session low of $41.11 per barrel, before settling 10.07% lower at $41.28 per barrel on Friday. Brent crude plunged 9.4% to settle at $45.27 per barrel.
Why it matters: The existing deal between the OPEC and its allies is scheduled to expire in March. Following this, the OPEC+ countries can pump as much oil as they want in a market that is already facing issues of oversupply. The crude oil demand forecast for 2020 has already been reduced due to coronavirus spreading to other countries.
Triggering what could become a price war, OPEC’s de facto leader Saudi Arabia has announced a reduction in its OSP (official selling price) of every oil grade for April suppliers.
New coronavirus cases are accelerating from outside the Chinese borders. The US has declared a “state of emergency” in eight states. Italy’s total cases reached 7,375, with death toll rising to 366, while total cases in France climbed to 1,126. Mainland China reported 80,735 confirmed cases and a death toll of 3,119.
WTI crude was down 26% to $30.59 per barrel in the Asian trade, marking its worst decline since the Gulf War in 1991.
What to watch: Markets will be watching the Saudi Arabia – Russia crude war very closely as well as for the OPEC’s next move to reduce production. Reports of oil stockpiles from the US Energy Information Administration and American Petroleum Institute will be also in focus this week.