Oil Prices Are Hanging on the OPEC Meetings
Oil prices have been moving erratically over the last few days as Coronavirus outbreak is to blame. This continues to be one of the most significant issues for global markets since the financial crisis of 2008.
The rising expectations that some of the world’s major oil producers will agree to production cuts appeared to steady oil prices on Monday. But as the Coronavirus continues to fan out across the globe sapping economic activity, analysts were doubtful that a reduction in the production of as much as one million barrels a day could be enough to stem a weeklong slide in prices.
OPEC officials will meet this week in Vienna to try and halt a slide to these plunging prices. Values have seen over 14% wiped from the WTI oil price over the last couple of weeks. The spreading Coronavirus epidemic is cutting into demand for oil and weakening OPEC’s clout. Still, the meeting is of interest to the markets. Countries representing roughly half of the world oil supplies will be present.
The hope is that a cut in output at this week’s meeting could halt the falling prices. However, this isn’t always the case. OPEC oil cartel gets the blame for not acting quick enough when they do the cuts are usually not deep enough to have a substantial effect on markets.
If markets continue to struggle, we could also see a continuation in central banks cutting interest rates. Last few days, the RBA and the Fed cut interest rates, in the latter’s case by 50 BP. This marks the first emergency rate cut since the 2008 financial crisis.
The other story surrounding the OPEC meeting is whether Trump will have his usual say on Twitter. What happens when OPEC cuts production and what’s the impact on the markets? Donald Trump is, of course, fighting a battle on several fronts. One of them being oil, but most likely, one of the most important is his re-election campaign. The outbreak of Coronavirus could be something that America will very much judge Trump on in the next few months. After Joe Biden swept through on Super Tuesday, it could be that Coronavirus is his best chance at getting into the White House.
Oil prices fell from highs at $55 per barrel to lows of $44 per barrel. In recent days we’ve seen a slight recovery with the oil price jump to $47 per barrel. Of course, the reason that we see OPEC and other oil-producing nations look to change output levels is to stop drastic falls in the oil price. Any fall in oil prices could have a significant effect on several significant economies. Oil price is the glue that holds a lot of financial markets together.
If Coronavirus will escalate, then we can expect a similar fall in oil prices to continue. It might be that OPEC nations and non-OPEC nations could act to stop the fall in the oil price.
In conclusion, Coronavirus remains a massive issue for these markets. However, for traders, it does give opportunities. Oil prices may well be under pressure, but it means that other markets have opportunities. The flight to safe havens remains one of the biggest with gold prices still moving higher, US-denominated debt continuing to be popular, and USD/JPY continuing to be the currency pair that sees the most influx of foreign money.