Oil plunges 10% after Opec deal collapses

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The Organisation of Petroleum Exporting Countries (OPEC) resolved on Thursday to cut crude oil production from its 14 members by a combined volume of about 1.5 million barrels per day.

Following the collapse in oil prices this year as the economic impact of the coronavirus saps demand, the risks for the Friday meeting between OPEC and Russian Federation are high.

OPEC on March 5 said it wants to cut supplies by an extra 1.5 million barrels per day (bpd) until the end of the year - a deeper reduction than earlier suggested and for a longer period than had been expected.

Major oil traders warned that prices could tumble further if Opec fails to take action without Russia's support, and predicted oil price lows below $45 a barrel for the first time since the market began to recover from the last price crash in 2016.

The Kremlin said on Friday that President Vladimir Putin had no immediate plans to talk to the Saudi leadership, an announcement that dashed hopes that a deal could be salvaged at the very top. If agreed, the production cut could become the deepest one since the 2008 financial crisis.

Oil prices tumbled about a $1 on the comment by the high-level Russian source, taking the price down below $48 a barrel and losing more than a quarter of its value since the start of the year due to fears the virus would destroy oil demand.

The spread of the coronavirus has sharply reduced air travel and thus the demand for fuel, while industry in China, the world's second-largest economy, has been severely disrupted through shutdowns and travel restrictions.

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The International Energy Agency (IEA) also cut its 2020 oil demand growth forecast by 365,000 b/d to 825,000 b/d, the lowest since 2011.

In December, they announced a further 500,000 barrel cut with OPEC kingpin Saudi Arabia adding a "voluntary" contribution of 400,000 barrels.

The success of the summit, which has been called three months ahead of the next scheduled meeting, will above all hang on the alliance between Saudi Arabia and Russian Federation, the most important players in the OPEC and OPEC+ groupings respectively. OPEC ministers have called for extending that deal as part of a new pact, taking total supply reductions to about 3.6 million bpd.

Reuters cited sources as saying negotiations between OPEC and Moscow have been more hard than in the past.

Regarding falling crude oil prices, Novak argued that there were many speculative factors driving the prices lower.

"Moscow perhaps is underestimating that Saudi Arabia may be ready to walk away if it doesn't get a positive answer", Amrita Sen, co-founder of Energy Aspects think-tank, told Reuters.

Some analysts say the worst is yet to come for global markets and for oil demand.

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