OPEC Did Not Meet Investors’ Anticipations. Crude Tanks After the Meeting in Vienna. Image source: Wang Aizhong © 123RF.com
OPEC’s 178th Meeting of the Conference dubbed “Extraordinary” was concluded on Thursday in Vienna, and it mostly failed to meet investors’ expectations concerning the Organization’s reaction to the coronavirus’ spread.
The market was bracing for an announcement that the Organization of the Petroleum Exporting Countries would strike a deal with other countries, that are not members of OPEC, and that the aggregate production would be reduced.
The expectations for a reduction in oil production are prompted by the reeling energy market, which was struck by the coronavirus outbreak in China, and now elsewhere.
The demand for the precious commodity tanked considerably in mid-January when industrial activity in the world's second-largest economy was lessened by the Chinese government in a bid to curb the spread of the virus.
“the COVID-19 outbreak has had a major adverse impact on global economic and oil demand forecasts in 2020, particularly for the first and second quarters. Global oil demand growth in 2020 is now forecast to be 0.48 mb/d, down from 1.1 mb/d in December 2019.”
Investors were hoping that the Ministers of OPEC and OPEC+’s member countries were going to reach an agreement for an immediate reduction in aggregate oil production to offset the muted demand.
However, the negotiations hit a roadblock after Russia decided to play hardball in Vienna and the only meaningful thing that was agreed on by everybody was the decision to prolong the period of the already agreed upon reductions until the end of the year.
“In view of market developments and following OPEC’s 178th Extraordinary meeting today, the Heads of Delegation of the OPEC Conference held further consultations and decided to recommend extending the duration of the proposed 1.5 million barrel per day additional adjustment until the end of 2020, instead of 30th of June 2020.”
More substantial agreements could not be reached at the present moment because Russia did not agree to Saudi Arabia’s proposal for bolstered reductions in the aggregate oil production.
Alexander Novak, the Energy Minister of the Russian Federation, contended against acting in the blind. Russia is reluctant to agree to Saudi Arabia's proposal because the full extent of the virus’ impact on the global economy is still unclear.
Russia would rather wait and see how the situation evolves next before agreeing to such structural changes in oil production that are going to have a profound impact in the long run.
Overall, the outcome of the 178th Conference of OPEC in Vienna did not satisfy investors’ expectations to the fullest, which led to an almost 10 per cent selloff in crude’s price.
The precious commodity closed yesterday’s trading session at 41.51, which is really close to the psychologically important support level at 40.00.
Crude Oil 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
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