Oil markets have had a terrible start to the 2020 year. While the same could be said for the general market as well, with the Dow Jones Industrial Average having the worst week in its history as coronavirus fears continue to worry investors, price swings in the oil markets have their own geopolitical implications to consider.
With prices for oil down around 25% since the start of the year, some OPEC countries are considering further supply cuts to try and keep prices in check.
Saudi Arabia in particular is pushing its fellow OPEC members to consider further production cuts in another meeting scheduled for next week. With demand for oil seeing a substantial decrease in Asian markets like China, prices have continued to fall. In response, Saudi Arabia is asking other allies, like Russia, to sign another production cut, this time reducing output by an extra 1 million barrels per day. According to sources familiar with the matter, this is considerably higher than what they had originally agreed to consider when scheduling the meeting. The new OPEC meeting will take place once again in Vienna between March 5-6, where it’s likely that the group will agree to further cuts.
Prices for U.S. benchmark West Texas Intermediate fell by around 4%, hitting $47 per barrel. Earlier on Thursday, WTI had fallen even further, dipping down to a 6% decline in price down all the way to just over $45 per barrel, the lowest level seen in over a year. International benchmark Brent crude also hit a new one-year low, falling down to just under $51 per barrel.
“Current forecasts of crude oil demand have fallen off a cliff. As China is the largest consumer in the world, the unclear impact of the coronavirus is driving WTI lower and lower,” said KKM CEO Jeff Kilburg to CNBC. “As China is the largest consumer in the world, the unclear impact of the Coronavirus is driving WTI lower and lower.”
This extra 1 million barrel per day supply cut will be on top of an already agreed-upon $2.1 million barrel per day cut announced back in December. Back then, the main worries surrounding the global energy markets was the China-U.S. trade war alongside America’s growing energy independence. Now those two issues are completely off the minds of investors and analysts alike.
While many are hopeful that OPEC’s efforts can do something to prevent prices falling further, other industry experts aren’t as optimistic. Considering the fresh outbreaks in countries like Italy, which threatens to spread across the rest of Europe, many consider OPEC to be almost powerless in the face of the current epidemic.
The total number of confirmed coronavirus (now known officially as COVID-19) cases has now reached 83,700 with the number of confirmed deaths hovering around 2,850. Countries like Iran and South Kora have seen surges in the number of cases, but Italy surprised the world for the worse when it announced a dramatic increase in outbreaks earlier this week. Potential treatments, whether in the form of vaccines or a drug, aren’t likely to arrive for a few months at the earliest.