Will The Crude Oil Rout Continue?

Demand is weak and supply aplenty; but pragmatism may prevail between Saudi Arabia and Russia

- Anand Kalyanaraman

The past week, crude oil prices fell off the cliff. In just two trading sessions, Brent fell nearly 35 per cent to about $32 a barrel on March 9, a level last seen during the previous oil rout in 2016. The latest crash followed an unexpected no-agreement on March 6 among the members of the OPEC+ group (primarily Saudi Arabia and Russia) on extending their output cut deal to stabilise already weak prices.

No deal

Just about three months ago, in December 2019, the OPEC+ group had decided to deepen its output cuts from 1.2 million barrels a day to 1.7 million barrels a day, effective January 2020 until March 2020. But this move, in response to risks of weak demand growth and oversupply conditions, did not prove a match to the oil demand destruction worries due to the global spread of the coronavirus. Brent had already fallen from about $65 a barrel as of end-December to about $50 a barrel until March 5; this was despite a sharp escalation in US-Iran tensions and worries of oil supply shocks due to the assassination of top Iranian military general Qassem Soleimani by the US government on January 3.