It looks likely to be a tough day of trade for Australian energy producers such as Beach Energy Ltd (ASX: BPT), Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX: WPL) after oil prices crashed lower on Friday night.
According to Bloomberg, the WTI crude oil price fell a whopping 10.5% to US$41.28 a barrel and the Brent crude oil price dropped 9.5% to US$45.27 a barrel. This was the worst day of trade that oil prices have had in over five years.
Why did oil prices crash lower?
Traders were selling oil on Friday night after OPEC+ failed to come to an agreement on production cuts.
The current production cuts that OPEC+ have agreed to are due to expire at the end of the month. Many in the market were expecting the oil cartel to make deeper cuts from next month in order to offset the pressure on pricing that softening demand has had following the coronavirus outbreak.
However, no agreement was made and production looks likely to increase rather than decrease.
According to CNBC, Russian Energy Minister Alexander Novak hinted that its production could take off next month.
He said: "As from 1 April we are starting to work without minding the quotas or reductions which were in place earlier, but this does not mean that each country would not monitor and analyse market developments."
US$20 a barrel oil?
Some analysts are now tipping oil prices to come crashing lower in the near future after this dramatic U-turn.
Exxon's former Middle East advisor, Ali Khedery, appears to believe major OPEC and non-OPEC producers are preparing for an all-out price war.
He said via Twitter: ″$20 oil in 2020 is coming. Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc – may prove existential 1-2 punch when paired with COVID19."
This sentiment was echoed by Emirates NBD commodities analyst, Edward Bell.
Bell explained: "Members look now to be preparing for a price war by announcing plans to actually increase output. The outcome is an astonishing reversal of what appeared to be a pending production cut to compensate for the decline in demand caused by the Covid19 (coronavirus) outbreak."
"Should OPEC+ members choose to raise output from Q2 onward, a wave of oil will be unleashed onto markets. We expect to see Saudi Arabia, the UAE and other large producers in OPEC increase production over the rest of 2020 as they return to a market-share strategy rather than price targeting," he added.
The next few months certainly look like they're going to be eventful for oil markets.
