The oil markets are expecting yet again that OPEC will be the hero of oil prices, and this optimism has sent oil prices up 4% on Monday afternoon, and up more than 2% on Tuesday morning.
The optimism is a welcomed event after last week’s falling prices that saw oil have the worst week in years.
Last week, the concern was that the coronavirus was continuing to spread to countries other than China, with the number of confirmed coronavirus cases also continuing to climb. Analysts lowered again oil demand projections last week, with some suggesting that March will see even more virus fallout than February did.
While rumors had surfaced last week that OPEC had proposed to its members an additional 1 million bpd cut from its current agreement, Russia had been dragging its feet and markets were nervous that OPEC would not be able to do enough to offset the loss in demand.
Another rumor surfaced that several OPEC members would cut production on their own, without Russia, if need be, but OPEC denied the rumors.
This week, traders are invigorated as we approach the March 5-6 OPEC meeting date that could result in additional cuts and Russian President Vladimir Putin said today that he would cooperate with OPEC+, although he was careful to point out that the current oil prices suit Russia’s budget just fine. Putin offered no specifics as to what kind of deal Russia would comply with.
The reality, however, is that COVID-19 is still breathing down the neck of the oil industry, threatening to continue to stifle economic activity, disrupt travel, and ultimately, strip demand out of the already inventory-rich global oil markets.
Traders also have renewed faith this week that the Federal Reserve—and other central banks—will act soon to mitigate the effects that the virus is having on the economy.
At 09:30 ET, WTI had climbed up 2.42% to $47.83 ($1.13), while Brent had risen 2.20% to trade at $53.04 (+$1.14).
By Julianne Geiger for Oilprice.com
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President Putin who made Russia the world’s superpower of energy understands the global oil market well enough to realize the futility of any cuts while the outbreak is raging.
Aside from the very strict measures being implemented in China and around the world to combat the outbreak, OPEC and the whole world can only wait and see.
Moreover, OPEC should be very weary of calls by the likes of the International Energy (IEA) for it to deepen the cuts. These calls aren’t motivated by their care for the welfare of OPEC members but by their own political agenda. For them, cutting more of OPEC’s production will lead to a reduction of its share in the global oil market and a weakening of its influence. This will certainly please the United States and the IEA.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London