-Oil price crash this year cost $10 billion.
-Today is a make-or-break day for OPEC+
Crude oil prices were in a free-fall before the start of Friday trading on Wall Street as delegates in Vienna worked to get Russia on board with deeper production cuts. Russia has so far balked at proposals for further production restraint, saying the current price point fit in its budget and that demand would eventually return. Libya’s 1 million bpd in potential output remains a wild card and most forecasts are clear that demand destruction stemming from the coronavirus could last through the year. What happens next will be pivotal not only for oil prices, but for geopolitical influence as well. This may be a make-or-break moment.
Brent was down a whopping 4.8% as of 8 a.m. ET, hitting $47.55 per barrel as OPEC uncertainty left investors searching for safe-havens. Equities took a beating in the previous session and the blood bath is expected to continue in Friday trading.
Reports out of Vienna suggest Russia is not agreeing to proposals to trim another 1.5 million barrels per day from output from parties to the OPEC+ agreement. Parties to the curtailment group were credited with pulling oil from the sub-$30/bbl doldrums of 2016. With the coronavirus stifling demand, particular for fuels, the group has been racing since at least February to contain the damage. With its role on a joint committee monitoring the agreement, Russia had pulled off a coup of sorts by sitting at the throne of the global economy. Its ascendant position among the world’s leading oil producers coincided with its push beyond the traditional belt of influence to places such as the Balkans and the Middle East, places usually reserved for Western dominance. If Russia continues with its stance, that influence – which could be felt in the US shale sector – will diminish.
Citing a who’s-who list of market gurus, Bloomberg News early Friday reported that coordination among oil producers was indeed unraveling.
Giovanni Staunovo at UBS said OPEC was “trying to corner Russia, and the Russians didn’t like it.”
“This is a battle of egos against reality,” said Roger Diwan with IHS Markit Ltd.
“If they commit an epic policy failure by not cutting production, I think we can easily see a re-visitation of old lows, in and around $26,” Bob McNally, president of consultant Rapidan Energy Group, said.
All we’re missing is a side of Daniel Yergin with a dash of Dennis Gartman.
The Russian ego could upend the apple cart even further for a global economy that was already seeing some contraction in the fourth quarter. IMF Managing Director Kristalina Georgieva said the 15% collapse in the price of oil so far this year translates to a $10 billion loss in revenue for oil exporters. Pointing to intervention from central banks, Georgieva said many countries have financial buffers to use to dampen the impact of economic constraint.
“As with the rest of the world, we would come up with our more detailed projections, once we can sort out through the uncertainty today, but, obviously, growth would be below our earlier baseline scenario,” she added.
A Reuters survey of some dozen or so economists found the Japanese economy, the third-largest in the world, may have contracted 6.6% annually, rather than the preliminary guess of 6.3%. Retail may slow as Amazon kept its US offices quiet amid outbreak concerns on the US West Coast. The travel industry and airlines have already been hammered. All three major US stock indices are pointing to another rough day on Wall Street, draining millions of dollars from an economy that’s already relied on extraordinary measures to keep growth moving. While a compromise deal is likely to emerge from Vienna today, the damage has already been done.