The collapse in the oil price is expected to continue until the end of the year as the war between Saudi Arabia and Russia regarding supplies continues to brew and a price at $10 or lower now seems a real possibility.
Saudi Arabia’s state-owned oil giant Saudi Aramco said it would continue with a big jump in oil production hike from April into May, which leads to believe they are for the time being comfortable with the current oil price.
The situation is not so good for Russia as the price of oil contributes a significant amount to their economy and many believe that they along with Saudi Arabia will eventually come to the table and make an agreement as it will be in both of their interests.
“The Gulf countries see Moscow as an important power that can play a broader security role in the region over the long term. The relationship between Mohammad bin Salman and President Vladimir Putin probably took a hit but the strategic imperatives have not changed,” said Analysts at Eurasia Group
“Extensive pain from the oil price shock will accumulate over the course of 2020 and create the necessary conditions for negotiations, compromise, and probably a new production restraint agreement,” they added.
The spread of coronavirus which is showing no sign of letting up is causing chaos in the financial markets and leading to a drastic reduction in demand for oil. The virus now affects more than 200,000 people and the death toll stands at more than 8000.
Countries such as the US and Europe have unleashed massive stimulus programs in order to stabilize the markets and as this takes hold we may see the oil price regain some form of stability.
“After a 24% crash, oil prices are firming up on some selling exhaustion and as U.S. and European leaders unleash aid and stimulus,” said Edward Moya, senior market analyst at OANDA.
“A bottom for oil is not in place, but we could finally see some stabilisation if financial markets can maintain a somewhat constructive tone with all the stimulus that is about to hit,” he added.
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