Breaking talks under the OPEC + agreement, which happened at the beginning of March this year, shook the oil market. Let us remind you that it was about reaching a consensus regarding further cuts in the production of crude oil, because the demand for oil dropped significantly due to the coronavirus epidemic. Russia did not agree with Saudi Arabia's offer and broke off talks, fearing that the US share in the global market would increase even more.
After the breakup of talks and as a consequence breakup of OPEC +, the price of oil plunged from 40 to almost 20 USD per barrel. Since then, prices have deepened the bottom as oil demand continues to fall due to the increasing and longer restrictions on the global economy caused by the Covid-19 epidemic. Forecasts have appeared indicating that the price of oil may fall as much as USD 10 per barrel.
Oil storage facilities are currently filled, and empty tankers are also apparently lacking, as they are already filled with crude oil. Oil reserves, according to EIA data, increased in the US last week the most since 2016. However, there was information that the Chinese economy, resuming normal operation, and will start buying oil for their state reserves. This is a pro-demand factor in this market.
Positive signals also come from the White House. US President Donald Trump said he invited US oil industry representatives to discuss ways to help the oil industry which is struggling with reduced energy demand during the outbreak of the epidemic and the price war between Saudi Arabia and Russia. Trump added that he recently talked to the leaders of Russia and Saudi Arabia and believes that both countries will conclude an agreement on ending the price war in a few days. This, in turn, can reduce production and increase the price of oil.
The situation seems to require urgent action, because Saudi Arabia, as announced in early March, produces at full speed. Two industry sources said oil supply in Saudi Arabia rose to a record high of more than 12 million barrels per day on Wednesday, despite the drop in demand for crude oil and the United States trying to put pressure on the kingdom to stop flooding the market with oil.
Today in the morning, the price of WTI oil is rising by around 6% and Brent oil by about 8%.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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