OIL MARKET WEEK AHEAD: OPEC and Russia Back at the Negotiating Table

OIL MARKET WEEK AHEAD: OPEC and Russia Back at the Negotiating Table

It has been an extended time coming, but on Monday OPEC and Russia will finally start discussing the way to balance out falling oil prices.

The evaporating demand caused by the coronavirus was further exacerbated by Russia and Saudi Arabia’s spat over production levels eventually resulting in a 60% drop by prices this year. Despite its early refusal to coordinate a production cut with OPEC, Russia has now extended an peace offering saying it had been willing to speak , as demand destruction proved more excessive than most analysts had expected.

Political pressures also ratcheted up with President Trump calling on the 2 countries to return to some agreement about lower production, while at an equivalent time not offering for US producers to try to to an equivalent . The latter has been a bee in both Saudi Arabia’s and Russia’s bonnets, and it'll likely make it onto the agenda of OPEC’s talks Monday.

Here are some hard realities which will force producers’ hands: Russia planned on increasing exports by a modest 1.4% between April and June, but this is often becoming illusion within the face of the coronavirus spread. Using Poland and Germany as an example, Russia has earmarked a sales increase of 0.4% to the 2 countries for the approaching quarter, but both Poland and Germany are in near lockdown, conveyance has been reduced to a fraction of its previous operations, airlines remain grounded, and both countries have blocked off their borders.

There is no sign of a meaningful slowdown within the spread of the virus, with Germany recording nearly 7,000 new cases per day within the previous couple of days. Restrictions across Europe are set to stay in situ a minimum of until the top of April, during a best case scenario, but presumably until the top of June, and none of the Russia’s planned increases into Europe will actually materialise within the near future. long run contracts, however, are likely to be negotiated at these new, lower prices levels.

Cut, but By How Much?

Saudi Arabia and every one of the OPEC producers face an equivalent issues across their respective markets and therefore the key question now's not as long as OPEC will comply with cut, but how big a cut would actually be ready to stem the present decline in prices? this may largely depend upon OPEC’s internal estimates on how long the coronavirus crisis is probably going to last and on whether US producers are willing to become a part of a joint effort to curtail production.

US Consumption, Jobless Claims, and Rig Count

With the US market now facing a glut of petroleum , a number of the US economic indicators are going to be critical to point out how badly demand is being eroded by the spreading pandemic. The last fortnight of initial jobless claims made for a grim reading with numbers coming in off the charts. it'd be too early to hope for a levelling off within the number of latest claims due out on Thursday because the worst of shop and business closures may yet still be ahead. Similarly, the Baker Hughes US rig count is predicted to point out an extra reduction as domestic output struggles. an extended weekend over Easter could also be the sole relief next week.