Oil prices jumped to their highest in three years on Tuesday after OPEC and its allies abandoned talks on Monday without setting a new date for the next meeting.
Ministers had been set to resume talks on Monday after failing to reach a deal on raising oil production last week, with the United Arab Emirates rejecting a proposed eight-month extension to output curbs. Now that no deal to boost production has been reached, it could signal tighter supply and rising prices.
Brent crude futures rose 0.8% to $77.78 a barrel, trading around their highest since autumn 2018, while West Texas Intermediate rose 2.3% to $76.92 a barrel. This year alone, crude oil has soared by almost 50%.
The current “crisis” within OPEC, which has seen Saudi Arabia and the UAE fail to agree on whether to continue the production cuts agreement, is not entirely unexpected, according to analysts at Commerzbank.
Some OPEC members, including Saudi Arabia, had been hoping to increase production over the coming months. But the UAE refused to agree and sought better terms that would change how its quota is calculated and allow it to produce more, Deutsche Bank strategist Jim Reid said in a note.
Oil prices hit post-pandemic highs after reports that Monday’s meeting had been called off and that the group would continue with quotas at current levels.
Almost at the moment prices begin to rise, the differences between the members increase and production discipline declines, analysts at Commerzbank said.
The “meeting’s postponement brings the market closer to an August without extra barrels from the alliance, and that is why oil prices immediately jumped on the news,” Louise Dickson, oil markets analyst at Rystad Energy, said in a note.
“Postponing the meeting also reveals that the objections that the UAE raised are not easy to brush off,” she added. “It may take some convincing and some serious concessions from Saudi Arabia to reach a deal now, and these should only mean increasing output more than initially suggested going forward – if a deal is to be agreed among OPEC+.”
But one source familiar with the OPEC+ talks told the Financial Times that there is no postponement. “The UAE blocked the decision, so the meeting is cancelled. The current production levels continue as they are,” a person familiar with Saudi Arabia and Russia’s positions told the FT.
The dispute is still leaving the oil market cold, chiefly because supply is currently tight, Commerzbank said. But it will likely to put pressure on prices in the medium term, especially in view of the structural shift away from fossil fuels.
Oil futures held above $75 a barrel on Monday morning, as markets wait to see whether OPEC+ talks today can resolve the deadlock on an output deal driven by a clash between the United Arab Emirates and Saudi Arabia.
The OPEC+ group of major oil-producing countries failed last week to come to agreement on output quotas for 2021 and on extending the underlying internal supply deal by seven months, to December 2022. A fresh round of talks is due on Monday.
Brent crude futures were last up 0.24% at 4:45 am E.T., trading at $76.37 per barrel. WTI futures on Globex were up 0.23% at $75.32.
Saudi Arabia and Russia are pushing for a slow increase of 400,000 barrels a day each month for the rest of 2021, which most OPEC+ members back. The snag came with the extension to the deal that denotes how much oil each country contributes to overall supply from the group. The UAE refused to accept the extension without an adjustment to its contribution quota, which it sees as out of line with its output capacity and unfair compared with Saudi Arabia’s arrangement.
Should the deadlock in OPEC+ not be resolved, then the July ouput agreement could automatically run throughout August by default, said Kevin Solomon, energy economics analyst at StoneX.
“This would be troubling scenario for the global economy; the oil market would tighten at an even faster rate and prices could quickly exceed $80/bbl, which would hamper the global economic growth prospects through inflationary pressures,” Solomon said in a note.
Demand for oil is likely to rise as a result of the easing of pandemic restrictions, so the restrictions on supply could cause prices to skyrocket, he said. Ensuing price rises could in turn slow down global economic recovery.
Alternatively, OPEC+ could break apart over the deadlock. That would likely flood the oil market with supply as producers rushed to take advantage of a lack of quotas, some analysts say. In that scenario, prices would slump as supply outstripped demand.
With futures at their current level, the likelihood is for OPEC+ to find a way to resolve the impasse, Bjarne Schieldrop, commodities chief analyst at SEB said.
“However, with a Brent crude oil price of USD 76/bl the current oil market is too much of a joy to ruin by not finding a solution. We thus think that there will be some kind of compromise in the end where both Saudi Arabia, Russia and the UAE all get a little bit of what they want. But it could certainly drag on for several more days before a deal is reached,” Schieldrop said in a note.
This report has been updated to correct the figure for the proposed output increase.
Global oil demand is set to return to pre-pandemic levels by the end of 2022, but renewed COVID outbreaks and low vaccination levels in developing countries will make the recovery uneven, the International Energy Agency said on Friday.
The IEA issued its first forecast for 2022 in its monthly oil report, predicting that demand would build on 2021’s growth of 5.4 million barrels per day and increase by an additional 3.1 million barrels per day in 2022, reaching 100.6 million barrels per day by the end of next year.
Recovery will however be uneven as COVID-19 continues to affect non-OECD countries with slower vaccination rates and the pandemic caused shifts in consumer behaviour.
“Continued teleworking in OECD countries […], higher electric vehicle sales and increased car efficiencies for new models will weigh on growth.” the IEA believes, adding that ongoing border closures will also keep impacting fuel orders. They had slowed down significantly during the pandemic and associated lockdowns that prevented international and domestic travel.
Jet fuel and kerosene demand are therefore still expected to be 11% lower at the end of 2022 compared to before the pandemic. At the same time, LPG and ethane demand will rise around 5% above pre-pandemic levels and gasoline and diesel orders will rebound to their former standards.
The IEA left its outlook for 2021 demand mostly unchanged from last month. The more stable COVID-19 situation and continued recovery and economic reopening in OECD countries caused demand to rise in the first half of the year. However, slow vaccination rates in non-OECD countries led the IEA to reduce forecasts for the second half of the year.
Overall 2021 demand expectations were therefore lowered to 50,000 barrels per day, with annual growth now expected to be around 96.4 million barrels per day.
Global oil supply is set to grow more quickly in 2022, as the US is set to recover from two consecutive years of production declines and will account for much of the increase in supply from outside OPEC+. The IEA predicts non-OPEC countries will supply around 1.6 million barrels per day more next year, leaving OPEC+ to produce an additional 1.4 million barrels per day to meet growing demand.
“The boost in non-OPEC+ oil supply next year comes despite financial constraints and mounting pressure from climate activists and shareholders on major oil companies and independents,” the report said.
In the shorter term, the IEA said OPEC+ may have to revise its current supply policies in the second half of 2021, as disparities between demand and supply start developing and are set to affect markets in the last quarter especially.
Finally, sanctions on Iranian oil exports will also play a role in increased supply. If Tehran can strike a deal with global powers over its nuclear activities and sanctions are lifted, Iranian crude could flood markets and make the country the biggest driver of supply growth in 2022, the agency said.
Oil prices soared Thursday in the wake of reports that major oil producers have agreed to keep their supply cuts intact through next month.
OPEC and its allies had been discussing whether or not to restore as much as 1.5 million barrels a day of oil production. The group ultimately decided that it will leave output at current levels, according to a Bloomberg report.
Saudi Arabia, meanwhile, committed to extend its voluntary cut of 1 million barrels of oil per day. The oil market officials meet via video-conference. The discussion took place at a time when recovery in the oil market is still taking hold after a plunge in demand because of the COVID-19 pandemic.
Prices for Brent crude, the international benchmark, jumped as much as 5.3% to an intraday high of $67.47, with the gain later trimmed to 4.7%.
The decision by OPEC+ was “incredibly bullish,” and Saudi Arabia’s decision “was shocking as it leaves them vulnerable to losing market share next month when the oil market is in deficit by a couple million barrels,” said Edward Moya, senior market analyst at Oanda, in a note.
West Texas Intermediate oil futures also popped up as much as 5.3% to an intraday high of $64.51. The continuous contract was later up by 4.6%.
Brent oil should jump 17% from current levels to $75 per barrel this summer, with Goldman Sachs expecting a lag in supply relative to demand to support a further gain in prices.
The Organization of the Petroleum Exporting Countries and its allies next month are poised to agree to boost production but the investment bank said the increase will likely fall short of its demand forecast.
Goldman Sachs now expects Brent to reach $70 in the second quarter and $75 in the third quarter, with each forecast raised by $10 per barrel. The investment bank’s call would represent a 17% upside from Brent’s intraday high of $63.94 in its continuous contract.
The “cross-asset oil outperformance this year remains driven by fundamentals, with better than expected demand and still depressed supply once again creating a larger deficit than even we expected in January and February, and with timespreads strengthening,” said Goldman Sachs in a research note published Monday and led by senior commodity strategist Damien Courvalin.
Brent oil prices have jumped about 23% this year after starting 2021 at nearly $52 per barrel. The vaccination of millions of people worldwide to curb the spread of COVID-19 has bolstered expectations that more businesses will reopen, which in turn brighten the outlook for oil demand.
OPEC next month appears ready to raise its oil production quotas by 500,000 barrels a day beginning in April, with Goldman Sachs saying its base case also includes Saudi Arabia reversing its production cut of 1 million barrels a day, a unilateral move announced in January.
“This remains however well below the 2.4 [million barrels per day] increase in demand we forecast from now to April — with as a result an agreement to hike production not bearish in our view,” said Goldman Sachs. “In fact, these barrels would arrive a month later at destination by which point we expect demand would have risen an additional 0.2 mb/d, further tightening the spot oil market.”
Goldman also said it has seen no signs of higher activity among most non-OPEC+ producers outside of North America, which creates risks that output will fall short of its demand forecasts by 900,000 barrels per day over the coming year.
Global oil demand should reach 100 million barrels a day by late-July, said Goldman Sachs, which would be sooner than its previous forecast for oil to reach that level in August.
For as long as there have been financial markets, there have been market crashes.
The March 2020 market crash – driven by the rapid spread of coronavirus around the world – is just the latest in a long line of panics throughout the hundreds of centuries that have roiled markets, crashed economies, and led to financial ruin for countless people.
Generally driven by investor panic and loss of confidence in the markets, often after a period of excitement and speculation, market panics are features of the financial and economic system around the world.
From the infamous Tulip Panic of the 17th century, to the 2008 financial crisis, Markets Insider decided to round up a handful of the most notable and interesting crashes in market history. Check them out below.
Covid-19 Market Crash, 2020
The novel coronavirus outbreak not only led to a global health crisis, but also the most recent global financial recession beginning on February 20.
Although the biggest impact of the crash was initially felt in China, it quickly spread to the rest of the world as the virus spread, forcing lockdowns and plunging economic activity around the globe.
Markets were initially stunned, and on March 16, the S&P 500 reported its steepest drop since 1987 as many businesses were forced to shut down and travel restrictions were set in place. The market’s reaction was sharp but short-lived, and by June, stocks were back to their pre-crash levels.
As the May futures contract for oil expired, many traders were faced with taking delivery of physical oil, so were forced into panic selling, which in turn pushed the commodity below zero.
In March, oil producers cartel OPEC held discussions to reinforce production cuts amongst allies from 2.1 million barrels per day to 3.6 million bpd and to continue this until the end of 2021.
Russia disagreed and a price war was launched by OPEC’s top trading member Saudi Arabia to fight for a greater market share.
Oil lost almost a third of its value with Brent crude crashing 24% to $33.36 and US oil dropping 34% to $27.34.
China’s Stock Market Crash, 2015
Over three weeks in June 2015, fear of a market seizure and growing financial risks across the country caused chaotic panic selling which erased over $3 trillion in the value of Mainland shares.
Possible triggers of the market crash include a surprise devaluation in the Chinese yuan and a weakened outlook for China’s growth, which then put pressure on emerging economies that relied on China for growth.
The crash’s worst day was on June 12, when the Shanghai stock index lost about a third of its value, while losses were even more pronounced in the smaller Shenzhen Composite.
Known to be the worst crash since the Great Depression, the 2008 financial crisis grew out of deregulation in the financial industry that eventually led to the inflation of an enormous housing bubble.
Like all bubbles, it eventually popped, as housing supply overtook demand and house prices fell, making it difficult for homeowners to meet their mortgage obligations, leading to a wave of defaults
The crisis worsened when investment bank Lehman Brothers — which was highly exposed to the sub-prime market — collapsed. Numerous other lenders were bailed out by governments around the world, and markets crashed, before the global economy spiralled into recession.
With its origins in Thailand, a severe financial crisis struck many Asian countries in late 1997.
Foreign investors were worried that Thailand’s debt was rising too rapidly when Bangkok unpegged its currency from the US dollar, and general confidence evaporated.
Indonesia, South Korea, Hong Kong, Laos, Malaysia, and the Philippines were the most affected countries as currency declines spread rapidly across, and they saw a drop in capital inflows of over $100 billion.
The Asian crisis eventually destabilized the global economy at the end of the 1990s.
The “Roaring 20s” were an age of excess and wild speculation. That all came to an end in September and October 1929, culminating in Black Tuesday, 29 October, when 16 million shares were sold on the NYSE in one day and the market collapsed
On 21st October, panic selling kicked off and by the tragic 29th, prices fully collapsed.
Finance legends like the Rockefeller family and William Durant ventured to correct the market by purchasing large quantities of stocks, but the rapid price drops did not stop.
By 1930, America was in the Great Depression — possibly the most painful crash in recorded history.
It spread well beyond the US, and by 1932, the world’s GDP had contracted around 15%.
On the historic Black Friday, 9 May 1873, unlimited speculation in banks and companies that existed only on paper set off a massive fall in value of shares on the Vienna stock exchange and caused a wave of panic selling.
This marked the beginning of a lesser-known Great Depression that lasted five years and spread across Europe and to the US.
The crash brought economic growth in the Habsburg Monarch to an end, and harshly impacted a group of bankers, some counselors of the imperial court and friends of the Emperor, including the imperial family itself.
The Tulip mania was one of the first recorded financial bubbles, and occurred primarily in the Netherlands between 1634 and 1637.
After tulip bulbs contracted a non-fatal tulip-specific mosaic virus, their prices rose steadily and made the already overpriced flower even more popular and exotic. Tulip bulbs then saw a 20-fold increase in value in just one month.
But as it happens in speculative bubbles, holders eventually began to sell off their tulips to solidify their profits resulting in a doom loop of continuously lower prices. Although it was not a widespread craze, it hurt a handful of buyers in the short-lived luxury market.
More than anything, the tulip bubble crash serves as a lesson for the perils that excessive greed and speculation can lead to.