Oil Prices Plummet - the Morningstar View

What does the latest plunge in oil prices mean for the energy market, and the valuation of the companies within it?

Dave Meats, CFA 9 March, 2020 | 3:51PM
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Oil barrel

The failure of the Opec+ coalition, which includes Russia, to reach an agreement on production cuts on March 6 has sent oil prices into a tailspin, with WTI dropping into the $20s in early trading (and still on course to land in the low $30s). That's the biggest single-day loss in almost 20 years, essentially wiping out all gains since the 2016 low after the shale-driven downturn.

Last week, the prevailing view was that the cartel and its partners, including Russia, would continue to support oil prices as the outlook for demand growth continues to deteriorate – due to the worldwide coronavirus outbreak, and its economic ramifications. Investors were anticipating, at minimum, that Opec+ would agree to extend the current cuts through 2020, instead of letting them expire at the end of March. And the cartel agreed to do so on March 5, while increasing the volumes being withheld from 500 thousand barrels per day to 1.5 million barrels per day (mmbpd).

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Dave Meats, CFA  David Meats, CFA, is a senior equity analyst for Morningstar.


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