Oil prices had
one of the biggest
ever falls on Monday, taking
the price of Brent crude
to nearly $30 a barrel.
Behind this was an
effective collapse
of an agreement
between Opec and Russia
to enact production cuts
to support the market.
Saudi Arabia, Opec's
de facto leader,
wanted deeper and
more prolonged cuts
to counter the effect of
the spread of coronavirus
on demand.
The International Energy
Agency said this week
that oil consumption is
expected to contract this year
for the first time since 2009.
Despite this, Russia did not
want to team up with Opec,
believing the bigger
cuts to production
would only propel rival
US shale producers.
So what happened next?
Saudi Arabia
started a price war.
Even as the world requires
less oil from global producers,
the kingdom said it would put
another 2.6m barrels a day
into the oil market.
This triggered a tit-for-tat
response from rivals.
Russia said it would add
more oil into the market
and so did the UAE.
It's the first time
since the 1930s
that we're seeing such a
severe demand shock now
combined with a supply shock.
What now?
Oil prices have
recovered somewhat
but no one knows how bad
this is going to get.
Major oil companies are
preparing for a prolonged
period of low prices.
Occidental Petroleum in
the US cut its dividend
to shareholders by almost
90 per cent this week.
Energy analysts expect big
cuts in capital spending
from some of the
world's major companies
and smaller players as their
balance sheets take a hit.
Producer countries dependent on
oil to fill government coffers
are also on alert.
The last time there was a price
crash, in 2014, it was brutal.
Again, the oil market is
preparing for the worst case
scenario.
