OPEC+ Breakdown Results in Price War
March 9, 2020
The price war is on and it didn’t take long for the energy markets to feel the pain. Russia’s noncooperation with OPEC has not set well with Saudi Arabia and the Kingdom went on the aggressive to gain market share and wreck the market. Saudi Arabia offered Asian and European customers unprecedented discounts and said they would increase production. When overnight trading opened Sunday night crude oil open down $8.41, RBOB down $0.1566 and ULSD down $0.1572 a very large gap down for energy, the biggest in history. The lows that the market has seen so far are crude oil at $27.34, RBOB $1.0574, and ULSD $1.0799. It has been a beat down for energy and the progress moving forward doesn’t look to good. The market is going to need some time to digest this extreme price move.
Saudi Arabia has been doing yeomen’s work to take barrels off the market to help support prices. But when Russia didn’t agree to continue to support OPEC’s production cuts Saudi Arabia was not happy and appears to now be on an aggressive path to break Russia and US shale production. How far are they willing to go we do not know. Their first steps have been very aggressive, historical in fact and despite those traders that will be looking to jump in and buy this market it could get worse and this extreme move is going to need some time to be digested by the market. It appears that Saudi Arabia is making a very strong move to remind all the players that cooperation is a way better plan than not cooperating and they are going to let the market feel that pain as a reminder that could eventually be used as a bargaining chip if and when negotiations take place again. OPEC does have it next meeting scheduled for early June.
Coronavirus is still a growing concern for demand destruction and negative economic impacts and those things are bearish factors for energy prices.