Oil prices nosedive on OPEC reports, coronavirus

Oil prices nosedive on OPEC reports, coronavirus

Oil prices plunged 10 per cent as the development revived fears of a 2014 price crash, when Saudi Arabia and Russian Federation fought for market share with U.S. shale oil producers, which have never participated in output limiting pacts.

OPEC also said that voluntary cuts of approximately 2.1 million barrels per day, already in place, should continue for the rest of the year.

On Thursday, OPEC ministers citing "an unprecedented situation" agreed to cut output by 1.5 million barrels per day (bpd) - or 1.5 percent of global demand- until the end of 2020.

The price of oil is slumping amid doubts that OPEC will succeed in agreeing with ally Russian Federation on cutting production to support prices as the coronavirus outbreak disrupts the global economy.

This is particularly telling, considering that OPEC has promised to cut 1.5 million barrels worth of supply from the market daily.

"Economic activity and oil demand is now collapsing around the world..." But it has struggled to win over Moscow.

Unless Moscow cuts output, "there will be no deal", his Iranian counterpart Bijan Namdar Zanganeh said on Thursday. It may, however, still take months before the impact is being felt and time is really not what OPEC has given the ongoing and potentially worsening demand shock.

What they're saying: "T$3 he market is now facing the spectre of unrestrained production once the current OPEC+ agreement expires in March", Wood Mackenzie analyst Ann-Louise Hittle said in a note Friday.

"Regarding cuts in production, given today's decision, from April 1, no one - neither OPEC countries nor OPEC+ countries - are obliged to lower production", he told reporters after the meeting.

"The worst case scenario is an extension", said an OPEC source when asked what would happen if Russia refused to join a new cut when OPEC, Russia and other producers meet on Friday.

Meanwhile, another dealer said traders were on the sidelines despite a weak greenback sentiment due to anticipation of more US Federal Reserve rate cut.

"The Saudis have accounted for over half the officially agreed cuts and they will lead the way with additional cuts and the others, including Russian Federation, will join because it is overwhelmingly in their economic interests", he said.

"A failure to reach an agreement would send oil prices crashing into the abyss", he said.

On Friday, the group will meet with non-Opec partners including Russia, Bahrain, and Brazil, to hammer out the finer points of a potential deal. IHS is forecasting global oil demand at 3.8 million bpd lower than a year ago, thanks to coronavirus. The bank maintained its Brent price forecast at $45 US a barrel in April.

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