HomeContributorsFundamental AnalysisOil Prices Set To Decline Further If OPEC+ Doesn't Act

Oil Prices Set To Decline Further If OPEC+ Doesn’t Act

Brent crude madea new 13-month low on Monday around $53.11 on news that potentially deeper OPEC+ cuts may not occur soon. The spreads in the futures markets are signaling weaker demand, with the discount on spot prices widening further. This year, Brent crude has dropped by more than 18% and by 25% from its January peak of $71.75.

2020 was supposed to put an end to the global manufacturing slump after the US and China reached their “phase one” trade agreement. It was expected that Europe wouldbegin to shine again due torenewed Chinese demand after the signing of the trade deal. But no one expected a coronavirus outbreak that wouldinterrupt economic activity in China and spread globally.

Now it’s no longer a question of whether the coronavirus epidemic will lead to an economic slowdown, but how painful this slowdown will be. The scale of the impact can only be determined when the spread of the virus begins to slowdown and the outbreak gets under control, which is not the case at the moment.

Chinese companies were supposed to return to work on Monday, but many car plants and other manufacturers have remained closed following the new year holiday. State refiners such as PetroChina, Sinopec Corp and CNOOC have all announced cuts to their refinery runs totalling approximately 940,000 barrels per day. In fact,this number will be much bigger if youtake into account independent refiners.

Given that China’s oil demand has fallen by more than three million barrels a day, the country may need to cut imports for several months to come. Until then, supertankers may need to store oil,which means inventories will begin to build-up excessively.

That’s why OPEC+ may need to make a quickdecision very soon to prevent prices from slumping further. Russia seems to be the main obstacle against cutting production at this stage. But if the coronavirus continues to spreadand we don’t see a response from the cartel, expect oil prices to remain in a freefall.

ForexTime
ForexTimehttp://www.forextime.com/
The FXTM brand provides international brokerage services and gives access to the global currency markets, offering trading in forex, precious metals, Share CFDs, ETF CFDs and CFDs on Commodity Futures. Trading is available via the MT4 and MT5 platforms with spreads starting from just 1.3 on Standard trading accounts and from 0.1 on ECN trading accounts. Bespoke trading support and services are provided based on each client's needs and ambitions - from novices, to experienced traders and institutional investors. ForexTime Limited is regulated by the Cyprus Securities and Exchange Commission (CySEC), with license number 185/12, licensed by South Africa's FSB with FSP number 46614, and registered with the UK FCA under reference number 600475. FT Global Limited is regulated by the International Financial Services Commission (IFSC) with license numbers IFSC/60/345/TS and IFSC/60/345/APM.

Featured Analysis

Learn Forex Trading

How to Use Pivot Points

Thinking in Probabilities

Moving Averages Explained