Oil rebounds after Black Monday price crash
Oil prices have shown some signs of recovery today after yesterday’s rout which led to such dramatic global stock market falls it was dubbed Black Monday.
Brent Crude oil is currently trading at $36 a barrel, an eight per cent increase on yesterday.
At the end of February, it was $51 a barrel.
“Oil prices have recovered following [the] biggest slump in almost thirty years with today’s increases touching seven per cent although prospects of a considerable recovery look slim,” Mihir Kapadia, the boss of Sun Global Investments, said.
What’s behind these falls?
The primary causes of the fall were coronavirus and the Russo-Saudi oil market share war.
Oil demand has been depressed as the outbreak has caused economic uncertainty.
Sign up to Morning Wire’s Midday Update newsletter, delivered to your inbox every lunchtime
Last week, OPEC and Russia, known as OPEC+, were unable to a supply agreement on how much oil to produce.
To guard their market share, Saudi Arabia and its allies decided to dramatically increase oil supply with a rate of almost 11 million barrels a day planned for April.
The result of this combination was oil prices falling to their lowest level since February 2016 with the largest daily decrease since the 1991 Gulf War.
The way ahead
“Prices have stabilised following the shock of Saudi Arabia’s decision to launch a price war against Russia after the disintegration of recent talks to deepen production cuts, Kapadia added.
“With prices low, this will likely mean that both parties will have to re-enter talks in order to prop the market back up and make it more profitable.
“Until that arises, limbo is expected in the oil markets.”
Coronavirus has had several impacts upon the world economy.
Sectors including retail, airlines and automotive have already faced serious disruption.
Results have been varied with some firms shielded but others exposed, such as airline Flybe which collapsed last week.
However, in the UK, fuel prices have fallen to the benefit of customers at some supermarkets.
Additionally, analysis from ratings agency Fitch has suggested oil refinery owners could benefit from the price war.
This is through giving them greater leverage to negotiate improved margins