Oil slipped below $50 a barrel in London as the fast-spreading coronavirus riled global markets, intensifying speculation that OPEC and its allies will strike a deal to support prices.
Brent crude for May delivery, the most actively traded contract, lost almost 4% as fears over the outbreak sent shares around the world slumping. The market’s price structure has weakened dramatically, tumbling into a contango, while the profits from making products like diesel have also collapsed. Amid the slump, there are signs that OPEC and its allies could be nearing agreement on action to stem the rout before meeting in Vienna next week.
The group’s top official said the cartel and its allies are displaying a “renewed commitment” to reach an accord as the virus puts the world economy on course for its worst performance since 2009. Saudi Arabia has been pushing for deeper production cuts over the last few weeks, but Russia has so far taken a more cautious stance. One silver lining for markets is that prices are now at a level that may be uneconomic for U.S. shale producers.
“I have never known so much uncertainty in the oil market — and especially so many large uncertainties,” Fereidun Fesharaki, chairman of FGE wrote in a report.
Brent for May settlement dropped 3.9% to $49.73 a barrel on the ICE Futures Europe exchange as of 9:31 a.m. in London. The less actively trade April contract, which expires on Friday, held just above $50. The global crude benchmark traded at a $5.09 premium to West Texas Intermediate.
WTI futures for April delivery fell 4.3% to $45.06 a barrel on the New York Mercantile Exchange, poised for the biggest weekly drop since December 2008.
The OPEC+ talks are scheduled for March 5-6 after Russia, whose budget is more resilient to lower oil prices, rebuffed pressure from Saudi Arabia for an earlier emergency meeting to deal with the outbreak. Combined OPEC output, not including Russia and other allied producers, is already at the lowest level since 2009.
The kingdom is now pushing for collective OPEC+ production cuts of an additional 1 million barrels a day, which it would bear the brunt of, according to a report in the Financial Times. That’s more than the 600,000 barrels per day of reductions that were recommended earlier this month by an OPEC+ technical panel.
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