Brent crude futures could plunge to “single-digit lows” if major oil producers fail to reach a deal to cut output, Fitch Solutions said in a recent report.
The world's main oil producers, including Saudi Arabia and Russia, are expected to agree to cut output at a meeting on Thursday, though that would depend on the United States joining in, sources told Reuters.
Any final agreement for how much OPEC+ will cut during their talks would depend on the volumes that other producers such as the United States, Canada and Brazil are willing to cut, an OPEC source said on Tuesday.
However, the threat of a major recession hangs over the market after the hit to economic activity as a result of the coronavirus pandemic, with half the global population under some form of lockdown or social distancing measures.
Worldwide oil demand has dropped by as much as 30%, coinciding with moves by Saudi Arabia and Russia to flood markets with extra supply after a previous output deal fell apart.
According to the agency's report, a fall in demand and an increase in supply could result in more than 20 million barrels per day of excess oil and put the oil market under "extreme physical pressure," RT.com reported.
"While it is unlikely that nominal storage capacity will be breached, it is possible that the sheer scale of the oversupply will overwhelm global logistics chains, plunging Brent into single-digit lows," Fitch analysts said, according to RT.com.
Other analysts said even if major producers — including those in the U.S. — could agree to reduce output, oil prices are likely to stay low as the coronavirus pandemic is keeping a lid on demand, CNBC explained.
Oil prices clawed their way into positive territory on Tuesday as hopes that the world's biggest producers will agree to cut output outweighed analyst fears that a global recession in the wake of the coronavirus crisis could be deeper than expected, Reuters explained.
Brent crude was up 88 cents, or 2.66%, at $33.93 a barrel by 1137 GMT after falling more than 3% on Monday. West Texas Intermediate (WTI) crude was up 79 cents, or 3.03%, at $26.87, having dropped nearly 8% in the previous session.
"Oil prices are holding their ground with market expectations building on an agreement for an output reduction of 10 million barrels per day (bpd), or at least close to 10 million bpd," BNP Paribas analyst Harry Tchilinguirian told the Reuters Global Oil Forum.
© 2023 Newsmax Finance. All rights reserved.