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Oil prices slide again despite global emergency bank rate cuts

The price of Brent crude slid once again on 16 March 2020, falling to $29.78/b despite a number of global emergency bank rate cuts. Some market analysts have warned the price may soon drop below $20/b, due to the price war between Russia and Saudi Arabia as well as the impact of the coronavirus outbreak on worldwide supply chains and consumer demand.

Commenting on the news, Jack Allardyce, Oil and Gas Research Analyst at Cantor Fitzgerald Europe, said: ‘There has apparently been no progress in attempts to mediate between Saudi Arabia and Russia, with sources saying that an OPEC+ technical meeting planned for Wednesday had been called off. Neither side appears likely to blink in the short term, with Saudi Aramco stating in an earnings call that it was likely to sustain higher output through May and was “very comfortable” with $30 oil. The company had said it would raise production to a record 12.3mn barrels of oil next month, including 300,000 b/d from existing stocks, as it looks to capture increased market share following the dissolution of the previous OPEC+ pact. With major Russian producers also suggesting they would up supply, and demand in freefall due to the economic impact of the coronavirus pandemic, April is expected to see record surplus production and we would expect downward pressure on prices to continue in the near-term. We believe that current prices are below achievable break-evens for the majority of producers, meaning that benchmarks will recover in the longer-term, although the impact on balance sheets even in the best case is likely to be significant.’

He continues: ‘Brent’s premium to WTI narrowed to less than $1 on [16 March], falling to its lowest since 2016, in the wake of capex cuts and President Trump’s plans to take advantage of low prices to fill the Strategic Petroleum Reserve. An Energy Department source suggested it could begin purchasing crude as soon as the next two weeks, filling the emergency stockpile to capacity in several months. However, while this could provide somewhat of a short-term tailwind for the US benchmark, a thinner spread would make US oil uncompetitive in international markets and potentially hit exports.’

News Item details


Journal title: Petroleum Review

Subjects: Oil markets, Exploration and production, Oil prices, Forecasting

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