By Ifaenyi Egede (Nigeria)
According to a report by Reuters on March 8, crude oil suffered its most significant price set back after two of the top oil-producing company entered into a price war that threatened the oil market with an influx of supply. Saudi Arabia was said to have started the fight after Russia refused to back the plan of OPEC to cut oil production in response to falling in demand as a result of the Coronavirus pandemic.
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The main reason Russia didn’t go along with the plan was that they felt it would help U.S. oil producers to the detriment of others. Saudi Arabia didn’t take it too well as it dropped its oil price and increased its output with Russia doing the same in the days that followed.
Reuters explained in their report that “OPEC, Russia, and other producers had cooperated for three years to restrain supply in a group known as OPEC+.” This price war meant that other countries in OPEC+ were now “likely to raise supply and cut prices to compete, adding to a market already awash with crude.”
Goldman Sachs was quoted as saying:
“The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus.”
The drop in price in crude oil caused panic selling in the U.S. stock market with bitcoin recording a 10% fall to a low of $7,800. Worried by the development, President USA Donald Trump has urged Saudi Arabia to help the G20 nations reach a historic oil cut-price deal in a video conference call. Head of Research, Citigroup Ed Morse was quoted as saying:
“Unprecedented measures for unprecedented times: Unprecedented in historical discussions of production cuts, the U.S. played a critical role in brokering between Saudi Arabia and Russia for the new OPEC+ accord.”
With the announcement of the end to the price war, the development is touted to help the price of stock markets and bitcoin go higher a notch. A data computed by CryptoCompare showed Bitcoin trading at $7,192 by 17:00 UTC on April 12 at a staggering 5% higher than it was six hours earlier. Even with bitcoin showing some signs of volatility, it is still touted to go above it’s current $6,700 trading price. Morning star was quoted as saying,
“There’s an old saying in the financial markets that, during a time of crisis, ‘Correlations go to 1. “The meaning here is that when there’s a panicked rush to the exits–as global stock markets have seen amid the spread of the coronavirus–all stocks are punished equally and indiscriminately.”
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