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Monday 9 March 2020 – 10:23 PM
| Last updated :
Monday 9 March 2020 – 10:23 PM
Oil prices tumbled about 30% yesterday, after Saudi Arabia lowered its official price for selling crude and put plans for a significant increase in oil production next month, to start a price war even as the spread of the Corona virus causes global demand growth to erode.
Prices fell by about a third after Saudi Arabia’s move after Russia refused to implement another major production cut, proposed by OPEC to stabilize crude markets, which were hit by concerns about the economic impact of the Corona virus.
Brent crude futures fell $ 12.23, or 27%, to $ 33.04 a barrel, after having previously fallen to $ 31.02 a barrel, the lowest level since February 12, 2016, and it is on track to post the largest daily drop since January 17, 1991.
The US West Texas Intermediate crude fell by 11.88 dollars, or 29%, to 29.40 dollars a barrel, after touching the level of 27.34 dollars, which is also the lowest level since February 12, 2016, while heading to the lowest level ever, to exceed a decrease of 33% in January 1991.
The disintegration of the group known as OPEC +, which includes OPEC as well as independent producers including Russia, ends cooperation that has lasted for more than three years to support the market, and to achieve price stability recently in light of the threat from the economic impact caused by the outbreak of the Corona virus.
Two sources told Reuters on Sunday: Saudi Arabia plans to increase its production to more than ten million barrels per day in April, after the end of the current agreement to curb production at the end of March.
And the largest oil exporter in the world is seeking to punish Russia, the second largest producer of crude in the world, because of its lack of support for the proposed production cuts last week by the Organization of Petroleum Exporting Countries (OPEC).
The International Energy Agency, recently, pointed to expectations of a decline in global demand for oil this year for the first time in 10 years, due to the effects of the spread of the Corona pandemic; In 2020.
“The Corona virus will adversely affect all types of energy products, from coal and gas, to new and renewable energy, but the strongest impact will be on oil,” said Keys of Birol, the agency’s executive director.
In a related context, Goldman Sachs reduced its expectations for the price of Brent in the second and third quarters to 30 dollars a barrel, citing the price war between Russia and Saudi Arabia and a major collapse in demand due to the Corona virus, which has killed more than 3,500 people around the world.
Goldman Sachs said in a note yesterday: “The significant reduction in the official selling price of Saudi crude and Russia’s reluctance to conclude a deal last Friday, indicates the weak possibility of reaching an (OPEC +) agreement immediately.”
“While we cannot exclude an OPEC + agreement in the coming months, we also believe that the agreement is fundamentally unbalanced while the cuts lack economic justifications,” the bank said, adding that the main perception currently is not to reach a similar agreement.
The bank added that the low prices will start to create severe financial pressure and a decline in the production of shale oil and other producers who bear high costs.
Assuming that production policy remains unchanged, Goldman predicts a supply deficit in the fourth quarter of 2020, which could reduce excess stocks until 2021.
The bank said: The possibility of withdrawing from stocks may help prices to recover to $ 40 a barrel by the end of this year.
On the other hand, Helma Croft, Head of Commodity Strategies Department at RBC Capital Markets, told the Guardian newspaper: The price drop today puts the financial health of producing countries at risk, as budgets will be reduced and an increase in debt over the duration of these declines, adding «settling For all producing countries, which are characterized by political and economic fragility, will be dangerous. ”