https://www.cnbc.com/2020/03/06/oil-sinks-5percent-to-multi-year-low-on-uncertain-opec-deal.html
- Oil prices sank to multi-year lows on Friday as OPEC’s allies rejected additional production cuts proposed by OPEC on Thursday.
- U.S.
West Texas Intermediate crude plunged more than 10% to settle at $41.28
per barrel. International benchmark Brent crude dropped more than 9% to
hit a low of $45.18 per barrel.
- The current production cuts
will be in place until the end of March as planned, but it’s uncertain
if they will extend beyond this month.
Oil prices plunged more than 10% to multi-year lows on Friday as
OPEC’s allies rejected additional production cuts that the organization
proposed Thursday.
U.S. West Texas Intermediate crude
slid 10.07%, or $4.62, to settle at $41.28, its lowest level since Aug.
2016. It was WTI’s worst day since Nov. 28, 2014. Earlier in the
session WTI traded as low as $41.11 per barrel.
International benchmark
Brent crude slid 9.4% to settle at $45.27 per barrel. Its session low was $45.18, which is a price not seen since June 2017.
The meeting between OPEC and its allies, known as OPEC+, concluded
with no deal on additional production cuts. The cartel and its allies
agreed to meet again to monitor the situation. The current production
cuts will be in place until the end of March as planned, but it’s
uncertain if they will extend beyond this month.
Russian Energy
Minister Alexander Novak told reporters leaving the meetings in Vienna
on Friday that it meant that members could now pump what they liked
starting April 1.
“We have made this decision because no
consensus has been found of how all the 24 countries should
simultaneously react to the current situation. So as from April 1, 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 analyse market developments,” he said.
On Thursday, OPEC recommended additional production cuts of 1.5 million barrels per day from the beginning of next month until the end of the year.
The
proposal was conditional on support from non-OPEC producers, including
Russia. OPEC cautioned that the deal could only be applied on a pro-rata
basis with core members set to cut 1 million barrels per day and
non-OPEC partners expected to cut 500,000 barrels per day.
Oil has tumbled into bear market territory as the
coronavirus outbreak has led to softer demand, and many on the Street
expected OPEC to step in in a bid to prop up prices.
“The OPEC+
confab is devolving into the worst case scenario for the group. Last
night, the best case scenario for the group was touted: a cut of 1.5
million bpd through year-end. That scheme hinged on Russian
participation, however, which is not forthcoming,” Again Capital’s John
Kilduff said.
Kilduff believes that without the additional cut of
at least 1 million barrels per day WTI prices could head into the upper
$30s.
The
XLE, which tracks the energy sector, slid more than 4% on Friday, and is down 21% in the last month. The
XOP, another oil and gas ETF, fell more than 7% to hit its lowest level on record, going back to its inception in 2006.
Virtu
Financial founder Vincent Viola said he believes oil will test the $35
level again, which not adjusting for inflation is more like $28 to $32.
This, in turn, will pressure many American producers.
“The
exploration and production patch is going to go through a dislocation
and you’re going to see a lot of bankruptcies and replacement and quite
frankly restructuring of the domestic oil market,” he said Friday on
CNBC’s “Halftime Report.”
How did we get here?
The
last time OPEC+ reduced supply on such a scale was in 2008 when it took
4.2 million barrels per day off the market to support oil prices in the
wake of the financial crisis.
The oil producers first committed
to curtailing their collective production policy back in 2016 in an
effort to bolster prices, with the deal coming into force in January
2017.
In December 2019, it was extended and the alliance agreed to
curb oil output by approximately 1.7 million barrels per day. Saudi
Arabia then opted to cut its own production voluntarily by an additional
400,000 b/d for three months, should fellow members stick to their
commitments. This brings the overall cut to 2.1 million barrels per day.
- CNBC’s Michael Bloom contributed reporting.
