Following OPEC production cuts in late 2019, the outlook for oil in 2020 was fairly positive. But just a month into 2020, the coronavirus has wreaked havoc on the oil markets
As 2019 came to a close, oil prices were under pressure from the continued surge of U.S. shale oil. Although OPEC and its partners had already cut production by more than 1 million barrels per day , U.S. oil production had grown by about 2 million BPD from early 2018 to late 2019.
Following a failed price war that started in 2014, OPEC’s strategy has been to prop up oil prices by cutting production. The cartel is now in a waiting game with U.S. shale producers, cutting production to keep prices propped up, while holding out for flatting or declining U.S. shale production. When that eventually happens, OPEC will be back in the driver’s seat — assuming it doesn’t take so long that electric vehicles are by then cutting deeply into oil demand.
That brought the total production cuts from OPEC and its allies to 1.7 million BPD. But then along came coronavirus, which is a. At the beginning of 2020, nobody had yet died from the virus. Now, the death total has surpassed that of the SARS virus that caused energy prices to slump in 2003. The dual threat caused a 20% slide in oil prices from the beginning of the year to early February. Last week OPEC members met with Russia with the hope of announcing additional production cuts that might stabilize oil’s free fall. This time Russia refused., “Russia has its own reasons for keeping production at current levels—mostly because its oil companies and government need the revenue.”
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