Get 40% Off
🚨 Volatile Markets? Find Hidden Gems for Serious OutperformanceFind Stocks Now

Oil Ends Down 10% at 4-Year Low as Russia Lets Down OPEC

Published 03/06/2020, 11:44 AM
Updated 03/06/2020, 03:26 PM
© 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.

West Texas Intermediate, 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%.

Brent, 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.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

“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.” 

Latest comments

Wise move by the russians. Short term pain - long term kings( just trying ) not sure if it gonna work and us shale survived when price was mid 20’s. Could be a repeat of 2014-2016 decline. Now it depends on countries and producers of how long they can survive with low oil prices, could be a domino effect. Also its a political game , eg venezuela, rosneft, lng pipeline to germany and others.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.