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Market in Shock

Coronavirus and OPEC+ create toxic market cocktail



With the impact of coronavirus overshadowing markets, oil prices have taken the biggest fall since the Gulf War. Chris Midgley, Global Head of Analytics at S&P Global Platts, discusses the ramifications of the price war between Saudi Arabia and Russia, and the outlook for global commodities markets.

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Insight from Moscow

Are Russia’s war chest and fiscal setup enough to combat OPEC+, coronavirus fallout?

The first few months of 2020 saw major changes to Russia’s political and energy landscape, as President Vladimir Putin proposed amendments to the constitution, the country’s crude production agreement with OPEC dramatically collapsed, and the coronavirus pandemic caused chaos on global markets.

Of these factors, the latter two are having a more immediate impact on the Russian energy sector, most evidently in the recent oil price crash.

Although the Russian energy ministry has released details on how much producers can increase crude output in April, the economic impact of the spread of the coronavirus could now derail these plans.

Listen: Crude oil markets and coronavirus face off

With the OPEC+ agreement in tatters and COVID-19 destroying demand, the crude oil markets are in turmoil. Prices have fallen over 70% since October but is there any upside in the short term, and where can the glut go? Platts reporters Emma Kettley and Nicholas Baldwin tell Joel Hanley the latest on benchmark Dated Brent as well as the wider North Sea and West African crude oil markets.

Listen to the podcast

Price Plunge

Oil Prices Plunge in Response to the Collapse of the OPEC+ Alliance

The S&P GSCI Brent Crude Oil has fallen by more than 30% over the first six trading days of March. On Friday, March 6, 2020, Russia opted out of a Saudi-led proposal to extend and deepen crude production cuts that had been central to a nearly three-year OPEC+ agreement to manage global oil supplies. With coronavirus cramping global oil demand, OPEC, led by Saudi Arabia, had wanted to further restrict supply to hold up oil prices.

Oil prices lost as much as a third of their value on Monday, March 9, 2020, the largest daily rout since the 1991 Gulf War. The S&P GSCI Brent Crude Oil ended the day down 23.5%. Exhibit 1 offers a visual representation of the this one-day price fall in the Brent crude oil prices.

The disintegration of the OPEC+ agreement almost immediately creates a new operating environment for the world’s three largest oil producers.

Unrestrained supply swamps oil outlook: S&P Global Ratings revises oil & gas assumptions

S&P Global Ratings lowered all of its West Texas Intermediate (WTI) and Brent Henry crude oil price assumptions as well as its Henry Hub natural gas price assumption today for 2020-2022 and beyond. In addition, we affirmed the AECO Canadian natural gas price assumptions (see table). These revisions are effective immediately.

Read the Full Article

U.S. Reaction

With oil prices down, some federal, state efforts to aid producers stumble

The collapse in oil prices has left many US oil and gas producers teetering on financial ruin, moving federal and state policymakers to take actions aimed at blunting the impact of ongoing and unprecedented supply and demand shocks.

But some of these efforts, particularly a plan to buy millions of barrels of crude for US government stocks, have failed early or have yet to materialize. And, notably, President Donald Trump has given no indication he is pushing for any substantial aid for an oil.

Listen: With oil demand in free fall, Trump administration has few answers for U.S. shale

On this episode of the Capitol Crude podcast, Sarah Ladislaw, senior vice president and director and senior fellow of the Center for Strategic & International Studies' energy security and climate change program, answers a few questions about where the U.S. oil sector is headed.

Listen to the podcast

Trade implications of the oil price collapse

Contraction, commitments and containers

Oil prices have collapsed by as much as 30% in response to a reduction in offered prices and increase in supplies by Saudi Arabia. Those have reportedly been launched in response to Russia’s refusal to cut oil supplies in response to the drop in demand caused by the COVID-19 coronavirus outbreak, S&P Global Market Intelligence reports.

There are at least four potential knock-on effects for international trade.

Key Takeaways:

  • The value of global trade will take a marked step down given the importance of the oil trade – it totalled 6.4% of global exports in 2018, Panjiva’s macro data shows. That was up from a trough of 4.4% in 2016..

  • Aside from cutting the absolute value of trade, the slide in the oil price removes a significant growth driver for U.S. exports.

  • China will be even less able to deliver its phase 1 trade commitments.

  • In theory lower fuel costs should be beneficial for the industry – bunker fuel is refined crude oil – though the impact on corporate financials will be a function of hedging arrangements.

Saudi Arabia

U.S. pressures Saudi Arabia to give up oil price war with Russia

The U.S. is urging Saudi Arabia to back off its oil price war with Russia, with Secretary of State Mike Pompeo calling Crown Prince Mohammed bin Salman on Tuesday.

The official Saudi Press Agency said the two "reviewed exerted efforts to maintain stability in the global energy markets."

The US State Department's readout of the call said that Pompeo "stressed that as a leader of the G20 and an important energy leader, Saudi Arabia has a real opportunity to rise to the occasion and reassure global energy and financial markets when the world faces serious economic uncertainty."

The call came ahead of a G20 leaders videoconference that Saudi King Salman bin Abdulaziz, who holds the international body's chairmanship this year, is hosting Wednesday to discuss the response to the coronavirus outbreak, which has already caused a major contraction in oil demand.

Listen: If the U.S. no longer needs Saudi oil, does it need Saudi Arabia?

The relationship between the US and Saudi Arabia is ... complicated. For decades, the U.S. has depended on the Saudis for crude oil exports and the Saudis have depended on the U.S. for military protection. But U.S. shale oil growth has changed all that.

On this episode of Capitol Crude, Ellen Wald talks about the state of US-Saudi relations, how that relationship may change further if there is a Democrat in the White House, and what low oil prices are doing to Saudi Aramco shares and the kingdom's 2030 vision.

Listen to the podcast