No one was predicting the outcome of a no-deal scenario as OPEC and friends met this week in Vienna.
The market hoped that OPEC+ would deliver deep cuts and help balance the market but this did not happen and in Friday trading, Brent crude had dropped to around US$42 with WTI just above US$46 a barrel.
Ministers left the OPEC headquarters after days of discussion without a deal. The OPEC Secretary General, Mohamad Barkindo made it clear that “it’s not about the failure of talks,” adding that it was a “painful decision of the conference to adjourn the meeting, but consultations are continuing.”
He was pleased with the OPEC member decision mid-week to recommend that additional barrels be taken off the market, but the leader of the OPEC+ group, the Russian energy minister, Alexander Novak could not be convinced.
The current situation on the market stays the same with the 2.1 million barrels a day previous adjustment in place until the end of this month.
There is no guidance for any producers after March and the president of Rapidan Energy Group, Bob McNally says that this could mean “a freefall in crude prices with no floor currently in sight.” The big worry will be that “crude will keep falling until producers decide to resume collective cuts,” and McNally worries that we’re seeing a repeat of 2014 when the oil market was in a “super-bust phase.”
The hope that OPEC had was that an additional 1.5 million barrels of oil a day would come off the market with OPEC member countries managing one million and the other half split between the non-OPEC members who are participants in the Declaration of Cooperation.
The expectation was that this would be in place for the rest of the year, meaning lower production by a total of 3.6 million barrels a day for 2020. The managing director and head of global commodity strategy for RBC Capital Markets, Helima Croft said this was a surprising outcome as she believed the group needed to “go big or go home.” It appears they decided to do the latter.
This was a planned extra-ordinary meeting, put in place to monitor the supply-demand balance in the first quarter. No-one could have foreseen the impact of the Corona virus on the oil market.
Analysts agree they still don’t know how bad it might become. OPEC holds two ordinary meetings a year, with the next meeting scheduled for early June. In the event there’s a need for another meeting, OPEC and friends know they have the flexibility to meet again, but so far no-one is mentioning any possible dates.
The oil price took a hit in swift reaction to the lack of a cohesive decision from OPEC+ with more than 8 percent being wiped off both benchmarks in immediate trading.
The oil market is now at its lowest level since 2017 and there are fears for its further demise if producers fail to agree to cuts before June this year.