Page 5 - MEOG Week 10
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expected to continue, including monitoring the impact of the coronavirus’ spread.
But the collapse in talks will still unsettle an oil industry that has grown used to Saudi Arabia and Russia working together to keep prices rel- atively stable in recent years. Prices have largely averaged between $65 and $70 a barrel in the past two years, as they have cut output to keep the market well supported in the face of rising US production.
Shares in the largest listed European oil and gas majors fell sharply, with BP and Royal Dutch Shell both down more 5 per cent on the day– fur- ther falls of over 15% followed on Monday .Saudi Arabia had effectively offered Russia a take-it-or- leave-it deal, where it wanted the OPEC+ group to remove an additional 1.5mn bpd in response to coronavirus, on top of existing curbs of 2.1mn bpd.
Russia made it clear that while it could sup- port extending the existing deal it did not want to cut deeper. In the end, the failure to reach any agreement suggests the existing 2.1mn bpd of
cuts will be allowed to expire at the end of this month. The oil industry is bracing itself for demand to potentially shrink in 2020 for the first time since the financial crisis.
Russia, too, has indicated it can live with a lower oil price for a period, with investors in the US increasingly wary of funding shale’s expan- sion, as it has largely failed to turn a profit and has relied on access to financing, which may be close to drying up.
Analysts warn lower prices could also be a very risky exercise given the impact of the coro- navirus on the world economy, as it threatens to become a global pandemic. Demand in China, the second-largest oil consumer after the US, has fallen by as much as 4mn bpd and traders are concerned that even smaller-scale lockdowns in the US and Europe will cut deeply into oil consumption.
The industry will have to be prepared for a rocky road, possibly with several awkward twists. Just how rocky was soon made clear with immediate and drastic Saudi cuts.
Week 10 11•March•2020 w w w . N E W S B A S E . c o m P5
