Thu 09 April 2020:
This afternoon’s crunch meeting between oil cartel Opec and Russia could send shockwaves through global energy markets and send oil prices spiking or crashing.
For weeks oil prices have been in freefall due to a production war between de facto Opec leader Saudi Arabia and Russia. The pair are stuck in a dispute over production cuts, leading Saudi Arabia to flood the market in March.
That prompted a huge collapse in oil prices that saw them hit decades-long lows.
As oil prices have collapsed, calls have grown for a new deal to be made to prop up the oil market, which has shed almost two-thirds of its value since January.
US President Donald Trump has even got involved, with the fate of the US shale market intrinsically tied to the outcome of today’s meeting.
Opec meeting could see production cut of 15m barrels per day
The Opec meeting could see monumental cuts of up to 15m barrels of oil a day.
Such a cut would be around seven times larger than the biggest curb Opec has ever before imposed on producers, when it cut output by 2.2m barrels a day during 2008’s financial crisis.
However, with forecasts for the global drop in oil demand of 25m barrels per day in April alone, analysts are not confident that today’s meeting can do enough to protect the market.
Will Scargill, managing analyst for energy at GlobalData, said: “It seems unlikely that any cut can be on the scale to fully answer the demand shock in the short term”.
Cailin Birch, global economist at the Economist Intelligence Unit, questioned whether “any cut can be on the scale to fully answer the demand shock in the short term”.
US has both the ‘carrot and the stick’
Analysts are especially nervous that a refusal on the part of the US to cut production could blow the whole deal. They fear that Russia will refuse to curb output unless the US does so too.
Opec meeting ‘unlikely to achieve both price support and stability’
In the best case scenario, analysts agreed, the meeting might achieve some form of stabilisation for oil prices. But this is far from certain.
James Davis, FGE’s director of short-term service and crude oil forecasting, said that producers were “unlikely to achieve both price support and stability”.
“They might get one, but not both,” he added.
The heightened political tensions surrounding the Opec meeting mean the worst-case scenario may be just as likely to unfold.
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