On Friday (10 April), oil prices dropped steeply as top oil producers strove to finalise an important agreement on output reduction in order to combat the crash in demand caused by the COVID-19 pandemic.
In morning Asian trade, the US benchmark West Texas intermediate dropped 9.3 per cent at USD$22.76 per barrel whereas the international benchmark, Brent, slid 4.1 per cent to USD$31.48 per barrel.
The pandemic battered economies worldwide, squeezing demand for oil, causing oil prices to collapse to near two-decade lows. The price war between Saudi Arabia and Russia has also worsened the situation.
On Thursday afternoon, talks were held via videoconference between OPEC exporting group, including Riyadh and OPEC+ allies including Moscow in addition to other key non-members.
According to Venezuela’s state oil company PDVSA, Saudi Arabia and Russia had proposed to cut oil output by about 10 million barrels a day, a move that was supported by Caracas.
After a conference call with Russian President Vladimir Putin and Saudi leader Crown Prince Mohammed bin Salman, US President Donald Trump stated that oil producers were “getting close to a deal”.
However, Mexico refused to participate in the curbs, which has unravelled a tentative agreement for an output cut, according to Bloomberg News. The talks would resume on Friday.
Even an agreement to slash 10 million barrels a day “won’t be enough to balance the market” due to the present excess of oversupply, as stated by Stephen Innes, who is the Chief Market Strategist from AxiCorp.
The main focus of producers is to stop prices crashing into single-digit, and such a deal “should be sufficient enough to handle the oversupply with the available storage capacity around the world,” Mr Innes concluded.