As the markets opened for yesterday’s trading hours, the benchmark oil prices dropped by roughly three dollars a barrel, mirroring global concerns of oversupply following a joint decision to suspend a meeting between Russian and Saudi Arabian policymakers to later this week. Both sides are preparing to negotiate a potential deal to reduce the production of crude oil.
Last week oil contracts recorded their largest weekly percentage increases since records began amidst growing hopes that OPEC (The Organization of the Petroleum Exporting Countries) and Russia could secure a joint agreement to cut the production of crude oil as the demand for energy takes a hit because of the coronavirus crisis.
The Covid-19 outbreak and the escalating price war have taken investors and the financial markets on a roller-coaster ride during recent weeks. The airline industry is hanging on for dear life as tourism becomes virtually non-existent following social lockdowns to contain the spread of the pandemic.
According to the United Nations World Tourism Organization ‘UNWTO also calls upon the sector and travelers to address this challenge with sound judgment and proportionate measures. Tourism is currently one of the most affected sectors and UNWTO has revised its 2020 forecast for international arrivals and receipts, though emphasizes that such any predictions are likely to be further revised.’
‘Against a backdrop of travel restrictions being introduced, UNWTO underscores the importance of international dialogue and cooperation and emphasizes the COVID-19 challenge also represents an opportunity to show how solidarity can go beyond borders. The tourism sector, like no other economic activity with social impact, is based on interaction amongst people.’
To read the full article by the UNWTO, click here.
During the weekend, there were hints from Saudi Arabia that a possible agreement could be in place which sparked hopes that the oil price war could come to a swift end. Moreover, US President Donald Trump also reassured economists and the markets that he would apply pressure to help both sides secure a deal.
Consequently, yesterday President Trump told reporters that OPEC had shown no intention to request that US oil producers cut their production rates to help balance global prices and markets, which have been hammered by the impact of the new Covid-19 outbreak. During a press briefing yesterday President Trump said “I think it’s happening automatically but nobody’s asked me that question yet so we’ll see what happens.”
As the coronavirus continues to wreak havoc on economic growth and business activity, the global demand for crude oil has plummeted by approximately 30 percent, which translates to 30 million barrels of oil daily. Simultaneously both Russia and Saudi Arabia have been inundating the markets with an abundance of oil. The tumbling oil prices have threatened the once thriving US oil industry as producers now face huge debts and cutbacks.
Brent crude and US Crude traded between 25 and 30 dollars a barrel yesterday.
Saudi Arabia failed to unveil its global prices for the crude oil it produces which suggests that it is not in favor of pumping the markets with cheap crude oil ahead of a possible production deal with other OPEC members and Russia.
During the weekend President Trump warned that he would impose a fresh round of tariffs on oil production from Russia and Saudi Arabia, as an incentive to get both sides to reach an agreement.
OPEC and its partners decided to suspend an emergency conference which was set for April 6th, moving it to Thursday April 9th. Some analysts have suggested that the postponement was made to give additional oil producers the opportunity to take part in the negotiations.
Rumors suggest that the proposals are calling for a cut of around 10 percent of all global oil production. This unprecedented initiative however has not been supported by Washington as President Trump has made no assertion to encourage US oil producers to cut back on crude production.
Unprecedented times equal a lot of uncertainty
The world is facing unprecedented times, supply and demand have been hit by a double dose of coronavirus and oil price wars.
Saudi Arabia’s plans to shift its reliance on oil production to fuel its economic growth could be in jeopardy because of the drop in demand for oil and the oil price war. Diversification away from fossil fuels requires funding for other alternatives such as renewable energy sources. However, a shadow of doubt has been cast over these plans as investors and economists are shrouded by uncertainty as to how long the price war will last.
Should the price of crude oil stay at such a low rate, then climate change is likely to feel the impact. Cheaper fuel means that less people will be willing to turn to renewable and more expensive forms of energy.