Oil markets have been rocked by two simultaneous events. The novel coronavirus has knocked out millions of barrels worth of demand for oil, and a supply war between Saudi Arabia and Russia has added millions of barrels of supply. For the past week, most analysts have treated these developments as disconnected events. The supply war seemingly had more to do with a clash of personalities within OPEC and an allied group known as OPEC+ that includes Russia. The hope was that “cooler heads will prevail” and everyone will agree to a supply cut, so prices go back up. But Saudi Arabia’s move to boost supply, to an expected 12.3 million barrels a day in April from 9.7 million last month, now looks like a more-calculated move to take advantage of the demand drop and grab a more substantial chunk of market share. Others also see a longer drawn-out supply war. “There has apparently been no progress in attempts to mediate between Saudi Arabia and Russia, with sources saying that an OPEC+ technical meeting planned for Wednesday had been called off,” said Jack Allardyce, oil and gas research analyst at Cantor Fitzgerald Europe. “Neither side appears likely to blink in the short term, with Saudi Aramco stating in an earnings call that it was likely to sustain higher output through May and was ‘very comfortable’ with $30 oil.” That dynamic is likely to push the price of Brent crude down to $20 in the second quarter, according to Jeffrey Currie, the head of commodities research at Goldman Sachs...MORE
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