Market participants fear that the decline in global oil production agreed by OPEC + countries will not be enough to offset the decline in hydrocarbon demand due to the coronavirus pandemic and the resulting global economic crisis.
Shortly after the opening of trading on the London Stock Exchange, the Brent benchmark oil began to become cheaper, despite the fact that OPEC + countries had agreed on the eve of a record reduction in oil production in the next two years.
According to the information on the course of trading, during the day the cost of June futures fell by almost $ 1 – from $ 31.48 per barrel to $ 30.63.
After the fall, quotes began to grow and at the time of writing the news, a barrel of Brent oil with a delivery time in June was trading at $ 32 (about 1.7% higher than at the close of the previous trading day).
According to Reuters, market participants fear that a decrease in production will not be enough to cover the drop in hydrocarbon demand due to the global economic crisis caused by the coronavirus pandemic. OPEC + states that oil production will decrease by about 20 million barrels per day, while oil demand has fallen by about 30% (about 30 million barrels per day).
American banks Goldman Sachs and UBS last week predicted that oil would continue to go down in price up to $ 20 per barrel.
An agreement to lower the level of world oil production of OPEC + was announced on April 10. An agreement was reached a month after the cancellation of the previous transaction, which provoked a record drop in raw material prices. By March 9, the price of Brent oil fell by 30% to $ 33 per barrel, which was the maximum daily drop since 1991, when the Gulf War began. On March 30, the price of Brent fell below $ 23 per barrel.
Against the backdrop of unsuccessful negotiations, Saudi Arabia, blaming Russia for disrupting the deal, decided to “enter into a total price war” and increase production from 9 million to 12 million barrels per day. In addition, Riyadh squeezed out Urals Russian oil from the European market, offering to triple its own supply of Arab Light with big discounts. This led to the fact that by March 31, the cost of Urals dropped to a minimum since 1999 – $ 13 per barrel. As Radio Liberty noted, Urals in Europe has become cheaper than fuel oil.
Starting April 1, oil prices began to rise amid expectations that Russia and Saudi Arabia would reduce production. On April 2, US President Donald Trump announced preliminary agreements with major oil producers to reduce production by 10-15 million barrels per day. Against this background, Brent crude rose by 16.3% to $ 34.83 per barrel.
However, negotiations were stalled due to a public skirmish between the authorities of Russia and Saudi Arabia on the reasons for terminating the previous OPEC + agreement. So, Russian President Vladimir Putin expressed the opinion that Riyadh has withdrawn from the deal to eliminate competitors that produce shale oil. Kingdom Minister of Foreign Affairs, Prince Faisal bin Farhan Al Saud called the words of the President of the Russian Federation “completely devoid of truth.”
Negotiations were also complicated by the position of Mexico, which refused to reduce production by the proposed 400 thousand barrels per day. As a result, Mexico will reduce production by 100 thousand barrels, a decrease of another 250 thousand barrels instead of Mexico will be provided by the United States, although the antitrust laws of the United States explicitly prohibit US companies from entering price control cartels.