OPEC+ March Meeting

OPEC+ March Meeting

They will discuss the rate cuts in the Oil production quota. Russia, the leader of OPEC allies, initially took a pause in involving itself in the initiative of cutting the rates, considering that more time is needed to assess the impact of the coronavirus infection. New cases of infection with coronavirus have been reported in Europe and the Middle East, with 57 deaths. Still far less than China’s report of 2,700 deaths.

A previous meeting took place in February this year and reportedly recommended a cut of 600,000 barrels a day, according to Reuters. OPEC+ produces over 40% of global Oil and the new proposed cut would be around 0.6% of global supply, which makes the analysts to expect a bullish price.

Russian President Vladimir Putin already stated his point in a meeting with Russian energy officials and producers when he talked about the coronavirus and its implications: “I want to stress that for the Russian budget, for our economy the current Oil prices level is acceptable”. Also, he agrees with the fact that all the decisions made by OPEC+ “proved to be an effective instrument to ensure long-term stability on global energy markets.”

After the last OPEC+ news from the meeting, Oil prices decreased by more than $11 a barrel this year, down to $55. Currently OPEC+ cut is 1.7 million barrels per day (bpd). Saudi Arabia, de facto leader of OPEC, and other members are worried that the spread of the virus could hit Oil demand and prices further, a source said to CNBC.

Latest news is that according to Bloomberg.com, Saudi Arabia wants OPEC+ to cut more than 1 million barrels a day. This is a larger cut than expected. But in order to make the cut, Saudi Arabia must overcome Russian resilience. Latest trade rate for Crude Oil is at $47.88 a barrel, an increase of 2.1%.

The economic drop caused by the virus infection is expected to reduce the global demand growth by 300,000-500,00 bpd, according to Brian Gilvary, Chief Financial Officer at BP.

But even if the cuts are made, the Oil price could remain weak until April. For China, the OPEC Oil price has been forecasted to decrease by 0.2 million barrels a day for the first half of the year, according to a senior analyst at S&P Global Platts. According to Oilprice.com, Brent Oil price is expected to slump to about $56 per barrel for this year from current price of $53.63.

Usually following an OPEC meeting, a change in the price of Crude Oil could be noticed, and also in other commodities like Natural Gas or Gold. There is a correlation between Crude Oil and Natural Gas prices. Market analysts say that there would be a positive correlation between the commodities, especially since Natural Gas is often a byproduct of drilling Crude Oil. A negative correlation means that the prices move in the opposite direction of each other, while a positive correlation means that the prices of the assets move together in the same direction.

In the case of Gold, the easiest way to analyze this relationship between it and Oil is by using a ratio between the two, according to technical analysts specialized in the commodities market. Over the past 25 years, the ratio between Gold and Oil has averaged at 15.8. It means that a troy ounce of gold was worth on average the same as 15.8 barrels of U.S. Crude Oil. When the ratio is high, it means that Gold is overvalued compared to Oil; Gold is too expensive or Oil is too cheap. Also, it can be the other way around.

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Sources: cnbc.com, investing.com, oilprice.com

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