The new week began with a more than 25 percent collapse in oil prices – the largest drop in 29 years. The trigger for the price collapse was the announcement by Saudi Arabia of new official selling prices (OSP), which, in fact, was the beginning of a new price war in the oil market, hit by the undeclared pandemic of the coronavirus COVID-19.
Saudi Arabia lowered its OSP and announced plans to increase oil production next month after Russia refused the additional reduction in oil production proposed by OPEC to stabilize oil markets.
Futures for Brent crude fell by 26%, to $ 33.46 per barrel. to 06:50 GMT (08:50 Kiev) after it had previously fallen to $ 31.02 / bbl. – the lowest level since February 12, 2016. Brent oil futures rushed to the largest daily decline since January 17, 1991, when prices collapsed at the beginning of the first Gulf War.
American oil brand West Texas Intermediate (WTI) fell by $ 11.48 or 28%, to 29.80 per barrel. after it reached the level of $ 27.34 / bbl, also the lowest level since February 12, 2016, the American oil standard could potentially reach the largest daily drop in history, exceeding 33%.
“The period of such low prices should be limited to several months, unless the virus crisis affects the world market and [falling] consumer confidence does not cause a new recession,” said Keith Barnett, senior vice president of strategic analysis at ARM Energy, Houston.
The actual disintegration of a group called OPEC +, consisting of cartel member countries and other producers, including Russia, completes more than 3 years of cooperation between residents and non-residents of OPEC in the field of market support.
Saudi Arabia plans to increase production of “black gold” to 10 million barrels per day. (b / s) in April after the expiration of the current agreement to limit oil production expires on March 31, two industry sources told Reuters on Sunday.
The world’s largest oil exporter seeks to punish Russia, the second largest producer in the world, for refusing to support additional production cuts proposed at the OPEC ministerial summit on March 5.
The last price war, in which Saudi Arabia, Russia and other major oil producers were involved, took place between 2014 and 2016. Its main goal was to oust American shale oil from the market, the production of which doubled in the past decade.
“[At the moment] the forecast for the oil market is even more deplorable than in November 2014, when such a price war started for the last time, since [today] we are talking about a significant drop in oil demand due to coronavirus,” they said at Goldman Sachs.
Last weekend, Saudi Arabia reduced the OSP for all grades of oil in all directions [of export] by $ 6–8 / bbl.
Viral crisis
Meanwhile, China’s efforts to contain the outbreak have had an extremely negative impact on the world’s second largest economy, leading to a drop in oil supplies to its largest importer. And the spread of the virus to other large countries, such as Italy and South Korea, and the growing number of cases in the United States, heightened fears that oil demand would collapse this year.
Goldman Sachs and other large banks, such as Morgan Stanley, have lowered their forecasts for demand growth, as Morgan Stanley predicts that in 2020 China will show zero growth in demand for raw materials. Goldman expects a reduction in global demand by 150 thousand bpd. In addition, Goldman Sachs reduced its Brent crude oil price forecast for Q2 and Q3 2020 to $ 30 / bbl.
A source: enkorr
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