Oil Plunges to a 3-Year Low on Prolonged OPEC+ Cut Indecision

Saudi Arabia is pushing for a reduction of 1.5 million barrels a day and Russia is in favor of supply at current levels.

Jacqueline Davalos

06 Mar 2020, 04:44 AM IST

Oil Plunges to a 3-Year Low on Prolonged OPEC+ Cut Indecision

An oil pumping jack, also known as a ‘nodding donkey,’ operates in an oil field near Samara, Russia. (Photographer: Andrey Rudakov/Bloomberg)

(Bloomberg) -- Brent crude settled below $50 a barrel for the first time since July 2017, as uncertainty loomed over whether Russia would agree to OPEC’s proposal for a large production cut.

Futures in London fell 2.2% as OPEC ministers extended their initial proposal for a 1.5 million-barrel-a-day supply reduction to year-end, according to delegates. The reduction is still contingent on Russia’s support, which is so far not evident. OPEC Secretary-General Mohammad Barkindo’s reassurance of the group’s commitment to stabilizing oil markets failed to quell oil prices.

“There’s a lot of skepticism about Russia’s cooperation and that is causing distress in the market” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle. “There’s a meaningful risk we could go lower from here.”

The need for the oil cartel to curb supply will be more pressing this year as global markets falter over fears of the coronavirus, or Covid-19, spreading, which is also denting oil demand. Oil producers are struggling against a weakening demand outlook, the likes of which hasn’t been seen in years.

OPEC estimates oil-demand growth at just 480,000 barrels a day this year, down from a forecast of 990,000 barrels last month. Large Wall Street banks and consultancies are even anticipating global oil demand contracting in 2020 for only the fourth time in nearly four decades. The International Energy Agency will slash its estimates on Monday, the group’s executive director Fatih Birol said in Washington.

Global Covid-19 cases topped 97,000 with infections continuing to surge in the U.S., Italy and Iran, prompting the head of the World Health Organization threatening to name countries that aren’t doing enough to fight the outbreak.

Brent futures for May dropped $1.14 to settle at $49.99 a barrel on the ICE Futures Europe exchange. West Texas Intermediate futures for April delivery fell 1.9% or, 88 cents, to settle at $45.90 a barrel on the New York Mercantile Exchange.

Other oil-market news
Gasoline futures fell 2.2% to settle at $1.5218 per gallon. Global oil demand could drop in 2020 due to the virus outbreak, Equinor CEO Eldar Saetre said in an interview. “There’s a high level of uncertainty and a broad range of outcomes,” he said. Saudi Aramco is delaying the release of its monthly crude-pricing announcement, an exceptional step by the world’s biggest oil exporter, as it waits to see if the OPEC+ alliance will deepen cuts in global output. Exxon Mobil Corp. is slowing the pace of its flagship development in the Permian, one of the first signs that oil majors are throttling back on production in response to the recent price slump.

Other oil-market news

Gasoline futures fell 2.2% to settle at $1.5218 per gallon.
Global oil demand could drop in 2020 due to the virus outbreak, Equinor CEO Eldar Saetre said in an interview. “There’s a high level of uncertainty and a broad range of outcomes,” he said.
Saudi Aramco is delaying the release of its monthly crude-pricing announcement, an exceptional step by the world’s biggest oil exporter, as it waits to see if the OPEC+ alliance will deepen cuts in global output.
Exxon Mobil Corp. is slowing the pace of its flagship development in the Permian, one of the first signs that oil majors are throttling back on production in response to the recent price slump.

--With assistance from Alex Longley, Saket Sundria, James Thornhill and Catherine Ngai.

To contact the reporter on this story: Jackie Davalos in New York at jdavalos10@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Mike Jeffers, Carlos Caminada