Oil prices plunged after the OPEC deal collapsed. The agreement will be invalid starting from April 1, and producing countries can increase oil production without restrictions. Meanwhile, falling oil prices put the Russian ruble under pressure.
Brent oil prices fell by over 27% on Monday dropping below $ 32 per barrel, the price of WTI fell below $ 30 per barrel. During the bidding, Brent price fell by 31% up to $ 31.27 per barrel.
The cost of Brent crude oil began to decline on Friday, March 6. The decline in oil prices and strengthening of the dollar and the euro have affected Asian indices. Hong Kong's Hang Seng index fell 1064 points (4.07%) to 25071. Tokyo’s Nikkei index fell by 1196 (5.77%) points to 19553. Shanghai’s SSEC index fell 2.11% to 2970.75 points.
The Saudi Aramco’s shares fell by 9.09%, to 30 riyals (about $ 8), dropping for the first time below the IPO level.
Why prices fell
A meeting of OPEC oil ministers and non-OPEC countries, including Russia, Kazakhstan, and Azerbaijan, was held in Vienna on March 6 amid the coronavirus outbreak. However, the participants could not agree on the terms of the deal to reduce oil production. Thus the agreement will be invalid starting from April 1.
Moscow proposed to extend the deal under current conditions (a decrease in oil production by 1.7 million barrels per day) for the second quarter of 2020, while Riyadh advocated a reduction of another 1.5 million barrels per day until the end of the year, Bloomberg and Reuters reported.
Amid OPEC deal’s collapse, Saudi Arabia said it could raise production much higher if needed, even going to a record 12 million barrels a day, Bloomberg reported. While Saudi Aramco also decided to lower crude oil prices, the agency noted.
What will happen next
Goldman Sachs' analysts admitted the price of Brent crude could fall to $ 20 per barrel.
According to Russian Energy Minister Alexander Novak, the increase in oil production in the country depends on the plans of domestic companies. Exiting the deal may allow Russia to increase production by 0.3 million barrels per day, he noted.