Petrol price war ends

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April 15 2020
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In bad news for consumers, OPEC has announced the end of its price war, meaning the cost of fuel is likely to rise in the coming months.

The price war began after Russia opted not to cut its petroleum production despite a sharp drop in demand caused by ongoing global lockdowns. In retaliation, Saudi Arabia announced a number of price cuts, sending the global oil price spiralling by more than 40 per cent.

But OPEC has now agreed to production cuts of 9.7 million barrels per day, with OPEC secretary general Mohammad Sanusi Barkindo citing a “spirit of solidarity” and the importance of international co-operation in ensuring stable energy markets.

“We need to ensure as a group that we deliver on these expectations,” Mr Barkindo said.

“We need to iron out any marginal differences to reach a consensus decision. We need to get this deal over the line. The consequences of not finding a solution and unanimity today do not bear thinking about.”

Before the agreement was reached, the world was staring down the prospect of single-digit oil prices as Russia and Saudi Arabia refused to soften their stances.

Despite the two large oil conglomerates making peace, the likely flow-on effects will take time due to the reduction in oil usage, suggests State Street Global Advisors head of policy research Elliot Hentov.

“We had expected major supply cuts to come later this spring, but the unprecedented OPEC+ agreement only kicks in starting 1 May. This is nearly two months following the beginning of the coronavirus shock, which has reduced demand by roughly 20 per cent since then.

“As a result, inventory build-up has been massive and there will remain a major oversupply for the coming months.

“While the OPEC+ deal is helpful, any meaningful supply-demand equilibrium will not be restored until there is clarity on the demand recovery. In the meantime, oil prices are likely to gyrate and continue to have downside risks until they experience a sharp rebound in the second half of 2020, when they should settle at about 25 per cent lower than their pre-crisis levels,” he concluded.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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