Home News Oil drops more than 7% as Russia rejects additional output cuts, OPEC+ talks collapse

Oil drops more than 7% as Russia rejects additional output cuts, OPEC+ talks collapse

by Business News Report

Oil futures fell by more than 7% on Friday as talks between the Organisation of the Petroleum Exporting Countries and their allies collapsed, with Russia refusing to agree to a Saudi-led plan for additional crude production cuts, even as worries persist over the global spread of COVID-19 and its impact on economic activity. “The OPEC+ alliance has finally run its course (at least for now) with Russian energy minister Alexander Novak saying producers are free to produce at will from April 1,” Marshall Steeves, energy markets analyst at IHS Markit, told MarketWatch. The current OPEC+ agreement expires at the end of March.

Following the talks on Friday, OPEC+ sources they would continue consultations to stabilise the oil market, but made no comment on production cuts, The Financial Times reported. “Evidently, the Russian approach is to allow prices to decline to the point that shale producers are squeezed out,” said Steeves. “Already, there have been more bankruptcies in the shale patch and integrated majors such as Exxon have announced reduced interest.” West Texas Intermediate crude for April delivery dropped $3.62, or 7.9%, to $42.28 a barrel on the New York Mercantile Exchange, with prices poised for the lowest front-month contract finish since August 2016, according to FactSet data. May Brent crude, the global crude benchmark, was down $3.67, or 7.3%, to $46.32 a barrel on ICE Futures Europe, on track for the lowest settlement since June 2017. For the week WTI crude traded almost 6% lower, while The failure to reach an agreement “could not have come at a worst possible time for oil that [is] trapped in a losing battle with demand-side concerns,” said Lukman Otunuga, senior research analyst at FXTM.

“At this point in time, it is difficult to pinpoint where the floor is on oil,” he told MarketWatch.

“To cut a long story short, the horrible combination of stuttering demand and rising shale production will most likely spell more trouble for oil, which has weakened almost 30% since the start of 2020,” said Otunuga. The Energy Information Administration reported that U.S. oil production reached a fresh record at 13.1 million barrels a day for the week ended Feb. 28.

Still, James Williams, energy economist at WTRG Economics, believes that by “the time the world is recovering from the economic impact of the coronavirus…U.S. production will be in decline. That will be good for OPEC in the fall,” he told MarketWatch, adding that the “low oil prices will help the rate of economic recovery.

The news of Russia’s refusal to go along with OPEC’s plan did not come as a surprise. Earlier news report said Russia, which is not a member of OPEC, had been resisting a call by the cartel for extra production cuts through the end of this year. The impasse comes after OPEC ministers on Thursday agreed on a call that would see the cartel cut production by a further 1 million barrels a day, while OPEC allies, led by Russia, would reduce output by an additional 500,000 barrels. Oil prices also suffered as investors around the world continued to dump stocks, commodities and other assets perceived as risky in favour of traditional havens on worries over the continued spread of the coronavirus. Oil prices had briefly pared losses early Friday after a stronger than expected February job report, which saw the U.S. economy add 273,000 new jobs in February. The rise topped the consensus forecast for a rise in payrolls of 165,000. In other energy trading, April gasoline fell 7.1% to $1.414 a gallon, while April heating oil dropped 6.4% to $1.3925 a gallon. April natural gas shed 2.7% to $1.725 per million British thermal units.

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