Oil Prices Fall While Russia Calls For Bigger OPEC DealOil prices continue to fall as coronavirus spreads and deals a blow to world oil demand.
Russia Wants Other Countries To Join The Production Cut Deal
A recent Reuters report stated that Kirill Dmitriev, the head of Russian Direct Investment Fund and one of Russia’s key negotiators, signaled that a new OPEC+ deal was possible if other countries joined the production cut pact.
The blow to world oil demand is so huge that a simple return to the previous OPEC+ deal will not work. In addition, there are worries that the world will run out of oil storage if the coronavirus containment measures stay in place for months.
In this scenario, oil producers will have to cut their production anyway since they will have no place to store the oil they produced. At this point, this is not a base-case scenario, but the oil market is in a state of shock so all kinds of theories circulate freely and increase market panic.
I’d note that it will be very difficult to reach an ”OPEC++” deal because any such deal should necessarily include the U.S. Unlike Saudi Arabia and Russia, where the oil production is mostly controlled by state-owned companies, the U.S. government does not control the private companies that produce oil.
This fact will make a coordinated response difficult, and any negotiations will likely take plenty of time since they will involve many players. At this point, Russia is simply signaling that it won’t return to OPEC+ deal unless the U.S. is in the deal as well.
Fast Spread Of The Virus Puts More Pressure On Oil
Latest news on the coronavirus front are bad – the U.S. has taken the global leadership in the number of virus cases, while the virus continues to actively spread in Italy, Spain, Germany, France.
These developments signal that virus containment measures, which hurt oil demand, will have to stay for more days and weeks. Also, the pace of the virus spread in the U.S. could make it difficult for U.S. President Trump to reopen the U.S. economy by Easter.
The U.S. is the world’s biggest economy, and its problems present a major blow to the world oil demand. At this point, it is clear that any stabilization on the oil price front will require some positive news on the virus front since the current outlook for oil demand in the second quarter is nightmarish.