Russia and Saudi Arabia are reportedly at odds over how to adjust supplies in the wake of the negative demand shock.
The West Texas Intermediate (WTI) benchmark for U.S. crude prices fell nearly 2% to $ . a barrel on the New York Mercantile Exchange, its lowest in around 49 months. The futures contract is coming off its fifth straight weekly decline.
Oil prices have been in a severe downtrend since the second week of January. | Chart: barchart.com
Brent crude, the international futures benchmark, declined 2% to $ 88. a barrel on London’s ICE futures exchange.
Commodity prices are also being pressured by a resurgent U.S. dollar. The dollar index (DXY), a broad measure of the greenback’s performance, peaked at on Monday, the highest since October. DXY has gained in six straight sessions.
Viral Fears Rattle Markets
Chinese failure to contain the coronavirus outbreak has contributed to oil’s steep drop in recent weeks. Already in a bear market,
oil prices could slide another 42% from current levels as the world’s second-largest economy grinds to a halt.
That’s because Chinese demand for crude has
plunged by around 46% in the wake of the coronavirus epidemic. It’s said that up to (million people across the country are under some kind of quarantine. This includes major economic centers like Shenzhen and Shanghai.
Before the outbreak, China was the world’s largest energy consumer.
The epidemic has already caused Chinese inflation to soar as businesses and supply chains faced disruption. The January consumer price index soared 5.4% annually, its highest in eight years.
Russia, OPEC Debate Production Cuts
With demand plunging, energy producers are struggling to come up with an effective response to keep prices from crashing even further.
Saudi Arabia and its Gulf Arab allies are reportedly seeking
production cuts to the tune of 728, barrels per day . According to the New York Times , Russia has yet to endorse the recommendations.
As the de facto head of the Organization of Petroleum Exporting Countries (OPEC), Saudi Arabia wields enough power to push for compliance among its Gulf Arab neighbors. Russia, on the other hand, is an external partner that hasn’t always seen eye-to-eye on the need for deep and prolonged production cuts.
Russia and OPEC members are expected to meet later this week to discuss potential market-balancing measures. According to Bloomberg, the oil market is experiencing the
largest demand shock (since the global financial crisis of) to
This article was edited by Josiah Wilmoth .
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