Please ensure Javascript is enabled for purposes of website accessibility

Crude Oil is in Freefall as Russia Plays Chicken With OPEC

By Jason Hall - Mar 6, 2020 at 3:24PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Crude futures are down 9% as some of the world's biggest oil producers stare each other down over production cuts.

The crude oil sell-off has gone from bad to worse. Brent futures are on track to lose 9% on March 6, while West Texas crude is down 9.5% with only a couple of hours remaining in the final trading session of the week. Today's massive drop was started by news that Russia wasn't prepared to play ball with OPEC, which had proposed a 1.5 million-barrel daily cut by OPEC and its OPEC+ partners, of which Russia is most-prominent. 

The proposal included 1 million barrels of daily production that OPEC member states had agreed to take, with the additional half-million daily barrels in cuts to come from Russia and the other non-OPEC members of the OPEC+ group. Russia would be expected to bear the brunt of most of those extra cuts, and so far is proving unwilling to do so

Oil and gas infrastructure.

Image source: Getty Images.

Bad oil market conditions could worsen

Today's massive sell-off is partly a product of timing, as traders fight to get out the door before the end of the week's trading. But there are serious structural concerns with oil markets behind the selling. Global oil consumption is already expected to fall in the first quarter due to the economic impacts of coronavirus on China, and a lack of substantial cuts in output by major producers would result in an increase in the oversupply. 

Markets are reacting as expected to these fears, sending most oil stocks down sharply. At this writing, ExxonMobil (XOM 1.18%) shares are down 5% on the day and have shed nearly 25% of their value over the past month, while small oil producer Denbury Resources (DNR) stock has fallen 11% on the day and 45% since early February. The sell-off isn't limited to companies that produce oil either: Noble Corp (NEBLQ), the offshore oil and gas drilling specialist, has lost half its value over the same period, after today's 18% sell-off. 

At current prices, oil is already at multi-year lows. West Texas crude is at $41.54 at this writing, the lowest since April of 2016, while Brent Crude is at $45.30, the lowest it has been since briefly falling below $45 in August 2015. What happens next will largely depend on what major state-controlled producers like Russia and the OPEC member states decide to do, but so long as the impact of coronavirus on global oil consumption remains in play, oil markets are likely to remain incredibly volatile. 

Investors looking for opportunity are moving away from the uncertainty of energy markets, with dividend stocks coming more into favor, particularly with interest rates at record lows. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
$91.72 (1.18%) $1.07
Noble Corporation plc Stock Quote
Noble Corporation plc
Denbury Resources Inc. Stock Quote
Denbury Resources Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.