Oil prices plunge 10% as OPEC+ output cut negotiations break down

Crude futures plunged roughly 10% Friday, following news that OPEC+ negotiations for deeper production cuts broke down.

NYMEX front-month crude settled at $41.28/b down $4.62 (10.1%) day on day, while ICE front-month Brent settled $4.72 (9.4%) lower at $45.27/b.

Russia refused to go along with a plan for deeper cuts to tackle the coronavirus' impact on global oil demand.

Global demand growth estimates have been slashed as the virus has spread. OPEC cut its 2020 oil demand growth forecast to 480,000 b/d, down from 1.1 million b/d seen in December 2019.

S&P Global Platts Analytics has cut its 2020 demand oil growth projection by 1.1 million b/d since January to 240,000 b/d.

Benchmark crude futures have fallen roughly 30% since January 20, when the virus first began impacting commodities markets.

OPEC+ had recommended that the existing 1.7 million b/d production cut be extended through 2020 with an additional 1.5 million b/d cut implemented by the end of June, split 1 million b/d for OPEC and 500,000 b/d for non-OPEC.

However, now the existing 1.7 million b/d cut will expire at the end of March, opening the way for lower prices, and threatening US shale production. US shale producers had already been increasingly focused on returns to investors, rather than output growth.

"The collapse of talks between Russia and OPEC produced another casualty: the producer accords themselves," said BNP Paribas economist Harry Tchilinguirian. "After a three-year experiment, OPEC+ now appears somewhat defunct as its members will no longer be bound by output restrictions."

"The Russian's can live with $40 a barrel oil and it seems they are willing to stomach even lower prices in the short-term to see the industry consolidate," said OANDA analyst Edward Moya. "Russia's endgame could be to gain market share in 2021 when global demand returns to normal. Russia might be willing to see some US shale drillers go out of business and if OPEC eventually capitulates without them."

Also bearish for crude was the continued fall in equities, reflecting the bearish economic outlook. Equities were lower again Friday as the coronavirus spread, with global cases now exceeding over 100,000, according to Johns Hopkins University.

"WTI crude could collapse to $35 over the next couple of sessions if the Saudis don't clean up this mess," Moya said.

Refined products futures also fell Friday. NYMEX front-month RBOB settled at $1.389/gal, down 13.28 cents, while front-month ULSD settled 10.33 cents lower at $1.3852/gal.