Oil in London plunged the most since 2008 on signs of a breakdown in the global producer alliance that helped engineer the crude’s recovery from the worst crash in a generation.
Futures plummeted more than 9 percent in London as talks between members of the OPEC+ group collapsed in Vienna.
Producers in the alliance are free to pump at will starting next month, after Russia refused to bend to Saudi Arabia’s wish for output cuts aimed at offsetting the COVID-19 outbreak’s effects on demand.
Photo: EPA-EFE
The end of the talks without a deal raises the prospect of another war for market share among producers, which had exacerbated the crude’s collapse in 2014 amid a global glut.
The OPEC+ alliance was formed in 2016 after the price crash imperiled economies dependent on oil revenue and led to a wave of bankruptcies among smaller exploration companies across the globe.
Oil’s plunge of Friday was mirrored in shares of producers, with Exxon Mobil Corp sliding 5 percent and Chevron Corp dropping 3.3 percent.
Global markets are already in a precarious condition, with investors fleeing risk assets on mounting fears that the outbreak will derail economic growth.
“There’s going to be pain for everyone in oil markets,” RJ O’Brien & Associates senior market strategist Josh Graves said. “The collapse of this deal means we’re going to see oil test US$40 a barrel.”
Russia resisted pressure from allies in OPEC to join a 1.5 million-barrel supply reduction, saying that it favors maintaining supply reductions at current levels until June.
Moscow is said to be still willing to have a meeting with OPEC and allies in June.
The collapse in discussions is the latest escalation of tensions between the Saudi-Russia alliance. Unlike other oil-exporting nations, Russia has a higher tolerance for lower prices given its plentiful international reserves, low debt levels and resilient fiscal budget.
OPEC+, which controls more than half of the world’s oil production, has underpinned prices and reshaped the geopolitics of the Middle East, but is now under significant strain.
West Texas Intermediate (WTI) futures for April delivery fell US$4.62 to US$41.28 a barrel on the New York Mercantile Exchange, down 7.8 percent for the week.
Brent for May settlement on Friday dropped US$4.72 to US$45.27 on the London-based ICE Futures Europe Exchange, down 8.9 percent for the week.
The structure of the futures market revealed concerning signs of oversupply as Brent’s so-called red spread — the difference between December contracts in consecutive years — sank deeper into bearish contango, reaching the lowest level since 2016.
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