Spectacular drop in oil prices after OPEC negotiation failure

  •   09/03/2020 - 15h30
  •   HARMANT Adeline

Oil prices fell by more than 25% earlier this week after OPEC failed in its negotiations to cut production. Explanations and tips to be followed in future sessions.

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Spectacular drop in oil prices after OPEC negotiation failure
Image copyright: ben klocek - Flickr

Why are oil prices collapsing?

While crude oil prices fell incredibly this morning, dropping more than 25%, analysts say they are now ready to consider a further decline below $20.

But what is the reason for this dramatic decline? Mainly due to the price war launched by Saudi Arabia, which has decided to lower its delivery rates. For its part, OPEC failed in its attempt to negotiate with Russia over a drop in production, resulting in massive sales on the markets.

The oil cartel ministers had indeed tried to play it safe in the face of uncertainty about the real economic impact of the current coronavirus epidemic, through an agreement with the other producing countries and with the aim of reducing world production to support the price of a barrel of crude oil. But Russia has strongly opposed this reduction of around 1.5 million barrels per day. It should be remembered that this country is the second largest oil producer in the world and is not part of OPEC. Following this refusal, Saudi Arabia decided to significantly reduce the price of its oil with a drop that had not taken place for more than 20 years. The price per barrel to Asia has thus fallen from 4 to 6 dollars per barrel and that to the United States has lost no less than 7 dollars.

This represents a 30% drop in the price of crude oil, which is a historic first and is currently causing the markets to panic. In the wake of this, we have also seen a significant fall in equity markets in Asia and the Gulf, and a similar fall is expected in the European and American markets.

 

How is the price of oil likely to evolve in the medium term?

According to analysts, the oil market is likely to remain negative for a few months due to Saudi Arabia's rebates and the drop in global economic growth caused by the Coronavirus, which is leading to a sharp drop in demand for black gold.

However, some specialists are considering another possibility if Russia finally decides to resume negotiations with OPEC and reduce its production following the collapse of the current price of crude oil.