© Reuters.
By Barani Krishnan
Investing,com - Oil prices closed 10% lower on Friday in one of the market's worst crashes that sent U.S. crude to four-year lows after Russia refused to back Saudi Arabia and other allies in OPEC on deeper production cuts to offset demand lost to the coronavirus.
, the benchmark for U.S. crude prices, settled down $4.62, or 10%, at $41.28 per barrel. WTI earlier fell to $41.05, its lowest since April 2016. For the week, it fell nearly 8%.
, the London-traded global benchmark for crude, lost $4.72, or 9.4%, to close at $45.27. Brent slumped to $45.19 earlier, a bottom since July 2017. For the week, it fell 10%.
OPEC+, which includes Russia and other oil producing countries that aren’t outright members of the cartel, issued a statement after talks in Vienna, saying it would continue consultations to stabilize the oil market.
But missing was any mention of deeper cuts of some 1.5 million barrels per day sought by group lynchpin Saudi Arabia. The Saudis were supposed to have come up with 1 million bpd of that and the Russians the balance. OPEC+ already has a separate deal to reduce up to 2.2 million bpd until the end of March.
“Despite the expectation that Russia was just trying to play coy with the market for maximum market effect … their resistance to production cuts is real,” said Phil Flynn, analyst at the Price Futures Group brokerage in Chicago.
But some traders think the Russian resistance is a calculated move to bleed dry U.S. shale oil producers, who aren’t a part of OPEC+ and who have been producing at record levels while enjoying price support from the alliance’s actions and grabbing market share from Saudi-Russian cuts. OPEC+ cuts have been going on for more than three years now.
“Russia was content in being the Bond villain in what appears to be the last movie in the three-year series called OPEC+,” said Ed Moya of online trading platform OANDA.
“The Russians can now live with $40 a barrel oil and it seems they are willing to stomach even lower prices in the short term to see the industry consolidate,” Moya said. “Russia's endgame could be to gain market share in 2021 when global demand returns to normal (and) see some U.S. shale drillers go out of business, or if OPEC eventually capitulates without them.”
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