The price of crude oil has fallen by just over a third since last Thursday ($50/bl) following the apparent collapse of the production sharing deal between OPEC and Russia (OPEC+) due to an inability by the group to agree on a concerted response to the coronavirus outbreak.
While there has been no formal statement from the OPEC+ group regarding its future, Saudi Arabia – OPEC’s largest member – announced that it would reduce the prices it charged customers for its oil output. This potentially represents the first steps in new attempts to boost market share through direct price competition between the global oil market’s significant producers.
Having fallen by approximately 10% on Friday, the price of oil has dropped by another 24% in early Monday trading to around $36/bl – having slumped to around $31/bl in the early hours of the morning before rebounding. This takes the price of front-month ICE Brent Crude to its lowest level since February 2016. These reductions now have the potential to reverberate across the energy markets, raising the prospect of lower energy bills for customers.
Dr. Craig Lowrey, Senior Consultant at Cornwall Insight, said:
“Expectations for oil demand have remained dependent on the global economic outlook, and given the lack of a resolution to the US-China trade dispute throughout 2019, there were progressive reductions in forecasts of the growth in oil demand from the International Energy Agency (IEA).
“The potential for declining demand has been exacerbated by the situation surrounding the coronavirus outbreak and its impact on economic output. With global oil output currently expected to remain above demand, the prospect for another oversupply situation – and its resultant effects on prices – remains apparent.
“While the commercial links between UK oil and gas prices have eroded in recent years, the sentimental links remain. As such, this fresh drop in oil prices has the potential to trigger further declines in both the GB wholesale gas and electricity markets. As a result, we could see energy suppliers react, potentially lowering customer bills.”