- OPEC+ talks in Vienna on deeper production cuts finished without the agreement
- OPEC proposed deeper production cuts of 1.5 million barrels per day, but Russia rejected the proposal
- Crude oil prices hit multi-year lows on news reports from Vienna
Crude oil prices trade nearly 8% lower today on the reports that OPEC+ have been unable to reach an agreement to cut production in order to cope with the coronavirus outbreak. Today’s low of $42.34 marks the lowest crude has traded since June 2017.
Fundamental analysis: OPEC+ talks on the brink of collapse
The meeting between OPEC and its allies – known as OPEC+ – is reportedly on the brink of collapse after a five-hour meeting today in Vienna. Accordingly, the allies rejected OPEC’s proposal for additional production cuts.
Yesterday, OPEC proposed additional production cuts of 1.5 million barrels per day, starting from April 1 and lasting until the end of the year. The draft proposal assumes that OPEC countries should cut 1 million barrels per day and its allies an additional 500,000 barrels per day.
“The OPEC+ confab is devolving into the worst case scenario for the group. Last night, the best case scenario for the group was touted: a cut of 1.5 million bpd through year-end. That scheme hinged on Russian participation, however, which is not forthcoming,” Again Capital’s John Kilduff said.
It has been reported today that Russia rejected the latest proposal from OPEC countries. Reportedly, Russia will only discuss extending existing output cuts.
“That position won’t change,” the Russian source said to Reuters.
OPEC made such a proposal on the basis that its allies accept it. Without their approval, such cuts make no sense for OPEC.
“The group may now end up merely extending the current production scheme, with no additional cuts, and the market is punishing them for that potential outcome,” he added.
Technical analysis: Lowest levels since 2017
As major media outlets reported that no deal has been reached in Vienna, the investors punished the OPEC+ countries by pushing the price to the low $42s. The 2018 low of $42.40 was briefly breached as the price printed a low of $42.34.
Compared to two weeks ago, crude oil prices lost more than 22%. As seen in the photo, the support around the $42 mark is of huge importance, given that the last time crude oil prices traded below the $42 handle was in August 2016.
A break of this support level would open the door for a move below the $40 mark. On the upside, the price action would need to return above the $49 – $51 zone before we consider any substantial recovery.
Crude oil prices have hit multi-year lows after OPEC and its allies, namely Russia, were unable to reach an agreement on deeper production cuts. Yesterday, OPEC proposed cuts of 1.5 million barrels per day starting from April to mitigate the impact of the coronavirus outbreak.