At this week’s OPEC meeting, the member states managed to agree that they would need to cut 1.5 million barrels per day in order to keep supply properly limited, considering how much the coronavirus outbreak has hurt the demand for oil. However, that amount was conditional upon Russia’s agreement to comply. Russia is not a formal member of OPEC and is thus not required to abide by OPEC’s policies. However, in the past it has willingly done so because it recognized the need to curb supply to boost oil prices.
The big shocker came earlier today when Russia announced it will not agree to cut production any more. Though the oil market is approaching an oversupplied state again and oil prices have dropped due to low demand, Russia is worried that as long as OPEC+ keeps supply low, the United States will continue to claim more and more of the oil market, which has been a trend over the last couple of years.
Due to Russia’s decision to not employ any new production cuts, oil prices slipped below the psychologically relevant level of $50 per barrel. The Brent crude fell to $47.74, while the WTI sank to $43.84 per barrel.
The stock markets also continue to drop in value due to the global economic slowdown caused by the coronavirus. Businesses are closing down or operating at limited capacity, supply chains are interrupted, tourism has been hit pretty hard, and airline companies are losing billions of dollars of potential revenue.
Overall, the sentiment remains grim. Despite various economic reports being published today, investors pretty much only care about the coronavirus at the moment. Safe haven assets are gaining value.
