By Adedapo Adesanya
Crude oil prices fell more than four percent on Wednesday, reversing earlier gains after Saudi Arabia announced that it will raise its production capacity by one million barrels per day.
This led to the Brent crude dropping 4.86 percent or $1.67 to trade at $35.50 per barrel, while the US West Texas Intermediate (WTI) crude fell by 4.62 percent equivalent to $1.72 to sell at $32.69 per barrel.
The de facto leader of the Organization of the Petroleum Exporting Countries (OPEC) has unveiled plans to boost oil production capacity to a record 13 million barrels a day, from 12 million bpd now.
As a result of cuts, the kingdom was pumping around 9.7 million barrels per day in the past few months, but has extra capacity of crude in storage.
Futures were looking to recover on Tuesday as they climbed over 10 percent, after crashing by more than 25 percent on Monday. But the news by Saudi Arabia plunged the market back into worry, adding to existing worries caused by the coronavirus spread.
Following a decision taken by Saudi Arabia over the weekend that it would cut its official selling prices by $6 to $8 per barrel, other members of OPEC are now piling in. The United Arab Emirates (UAE) said on Wednesday that it was ready to supply 4 million barrels per day in April, up from about 3 million at present.
This freedom to pump oil follows Russia’s refusal to agree to a cut of 1.5 million barrels per day by members of an OPEC alliance and saying every single member of the alliance could produce as it pleases from April.
Russia would be producing more itself in a bid to recover market share lost to US companies in recent years, following the US replacement of Russia as the world’s biggest oil producer thanks to its recent shale boom.
Analysts believe that Russia wants to gain market share by putting prices low enough to cause US shale production to drop, but might not pay off as it will only add more to an already oversupplied market.
In the face of this, the market continues to face an oil glut and as at Wednesday, the US Energy Information Administration (EIA) said for the week ending March 6, crude inventories increased by 7.7. million barrels.
Even at this, OPEC slashed its forecast for 2020 growth in oil demand by 920,000 barrels a day to 60,000 barrels per day on Wednesday, noting expectations for slower economic growth due to the spread of COVID-19 that has been declared a pandemic, with more than 118,000 cases in 114 countries and 4,291 deaths recorded.
Dipo Olowookere