It is a critical week for oil prices, as OPEC meets to discuss potential production cuts. There is a meeting this week in Vienna with the OPEC members, to explore significant enough measures to save the falling prices of black gold.
They have very much been on the decline since the start of 2020, when Coronavirus concerns began to ripple across the markets. Given China was largely on lockdown, it sparked demand worries, as they are the second-largest importer of oil.
If demand is falling, prices, of course, are going to follow, which has been the case. WTI has dropped from heights of $65 down to lows of $44, a chunky move of some 33%. The biggest decline period since October - December 2018.
In terms of the latest with OPEC, the same story continues to be the case of waiting on Russia’s participation. It appears that Russia has been reluctant to join the cuts, they themselves are a huge producer of oil to the market. Their involvement would be impactful in helping shift the market, in supporting prices again.
Sources have reported from the latest discussions a panel of several ministers from OPEC, Russia and other producers failed to clinch a preliminary agreement for additional cuts.
They detailed that Russia proposed keeping existing cuts by the group known as OPEC+ until the end of the second quarter.
However, Saudi Arabia wants extra cuts of 1 million to 1.5 million barrels per day (bpd) for the second quarter while keeping existing cuts of 2.1 million bpd in place until the end of 2020.
Russian Energy Minister Alexander Novak, was reported to have left the meeting of the panel, after three hours of talks. Further detailing that Novak went to Moscow for more consultations and would return for the full OPEC+ meeting on Friday. Russia appears to be reluctant because the United States is taking advantage of the current oil reduction from OPEC and Russia, producing more U.S. shale oil.
What does this all mean for the market?
If OPEC fails to produce a substantial cut in production with the involvement of Russia, then oil prices will likely get hit hard. In terms of the FX market, it is important not to forget Canadian Dollar’s (CAD) correlation with oil markets. Should the black gold tumble, CAD will follow suit and come under pressure.
Price appears to have bounced recently, in hope that action will be taken to support the market. A further push north and decent relief rally should be observed, should a decent reduction in supply with the help of Russia should be seen.
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