OPEC Deal Failed: Oil Prices Crash Over 30% as Saudi Arabia and Russia Trigger Oil War
| Updated by Bhushan Akolkar · 3 min read Photo: Unsplash
Brent crude has plunged nearly 31%, dropping to $31.02 per barrel with the year-to-date crude price dropping by 50%. The U.S. benchmark commodity is witnessing its worst day in almost the last three decades since January 17, 1991.
Last Friday, the OPEC and non-OPEC allies failed to reach a consensus on cutting down oil production to control oil price. Well, the tremors of these decisions are clearly visible in the global oil market.
In the early trading session on Monday, oil prices crashed 30% as Saudi Arabia drastically cuts down the crude prices. With Russia’s non-agreement to cut down the oil production, Saudi has opened its oil taps for the global market. After last Friday’s meeting, Russian Energy Minister Alexander Novak said:
“As from 1 April we are starting to work without minding the quotas or reductions which were in place earlier. But this does not mean that each country would not monitor and analyze market developments.”
With this crash, the price of brent crude has plunged nearly 31%, dropping to $31.02 per barrel. This is a steep fall of $14.25 per barrel just in a single day. With this, the crude price has also plunged 50% year-to-date.
Moreover, the U.S. benchmark commodity is witnessing its worst day in almost the last three decades since January 17, 1991. Speaking about the price cut, John Kilduff, founding partner of Again Capital, told CNBC:
“This has turned into a scorched Earth approach by Saudi Arabia, in particular, to deal with the problem of chronic overproduction”.
Experts Predict Major Price War in the Oil Market
With the coronavirus pandemic already hampering the global market, the oil behemoths met to control oil prices. However, the non-agreement between the two parties has led to this oil war. Ali Khedery, formerly Exxon’s senior Middle East advisor and now CEO of U.S.-based strategy firm Dragoman Ventures, tweeted:
$20 oil in 2020 is coming. Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc – may prove existential 1-2 punch when paired with COVID19. https://t.co/cw5uzDz8Yx
Many experts think that this could lead to a possible increase in production by Saudi from the existing 9 million barrels per day to over 10 million barrels per day. Theoretically, Saudi can pump to its maximum capacity of as much as 10 million barrels per day. Edward Bell, the commodities analyst at Emirates NBD, said:
“Members look now to be preparing for a price war by announcing plans to actually increase output. The outcome is an astonishing reversal of what appeared to be a pending production cut to compensate for the decline in demand caused by the Covid19 (coronavirus) outbreak.”
He further added:
“Should OPEC+ members choose to raise output from Q2 onward, a wave of oil will be unleashed onto markets. We expect to see Saudi Arabia, the UAE and other large producers in OPEC increase production over the rest of 2020 as they return to a market-share strategy rather than price targeting.”
He expects that with the OPEC+ hitting out for a price war, inventories will considerably surge during the first three quarters of 2020.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
As the oil price continues to dip following the effect of the coronavirus and the U.S. elections this week, many experts expect OPEC and its allied bodies to make policy moves to help prevent the complete market collapse.
The OPEC+ has agreed to cut supply by about 7.7 million barrels per day for the rest of this year while maintaining a supply cut of 5.8 million barrels per day starting in 2021.
As the coronavirus pandemic persists, the OPEC trimmed outlook on oil demand in 2020, and the first six months in 2021.
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