Oil Prices Drop as Economic Stimuli Prove Ineffective

By Adedapo Adesanya

Oil prices fell back into the negatives on Friday, a day after recording the first gains in 10 days as economic stimulus plans from government and central banks did not meet expectations as demand continue to fall due to coronavirus pandemic, worsened by Saudi Arabia and Russia oversupplying the market.

Brent crude fell $1.02 equivalent to 3.37 percent to settle at $29.28 per barrel, while the US West Texas Intermediate (WTI) crude shed $2.50 or 9.65 percent to settle at $23.41 per barrel.

Primarily affected by the coronavirus, oil posted gains at the previous session, but suffered big weekly losses sparked by the lower global demand.

As a result of this, both Brent and WTI collapsed about 40 percent in the past two weeks since the breakdown of talks between the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, leading Saudi Arabia to ramp up supply.

Even the possibility of an intervention into the matter by the United States president, Mr Donald Trump, did not help sustain prices which returned to the negative zone.

On Thursday, Mr Trump said he was going to act on the price war at the appropriate time, saying low prices were good for U.S. consumers even though they are hurting the industry. Not offering a present solution, the market had no choice but to go back down.

Lower prices of the commodity triggered the Nigerian government to reduce its pump price for consumers effective Thursday to N125 per litre from N145 per litre.

There were reports on Friday that OPEC held talks with a Texas state energy regulator and US shale producers about cuts to oil output in order to help the market cushion the effect of the coronavirus on fuel demand.

According to the Financial Times, OPEC’s secretary-general, Mr Mohammed Barkindo, held discussions with Mr Ryan Sitton, one of three commissioners at the Texas Railroad Commission, on Friday.

Mr Sitton was quoted as saying that the final decision rested with the American President, “I’m not going to negotiate with Opec in a vacuum, in the end it’s up to President Trump.

“What I’m offering him is that if he wants to get a deal done . . . Texans will get around the table.”

To help the market, US secretary of state, Mr Mike Pompeo, is set to hold a conversation with his Saudi counterpart in the coming days and urge him to call off the kingdom’s oil-price war with Russia.