Economist commentary – OPEC+ Oil agreement & prices

Following the breakdown of OPEC+’s production agreement, Warwick Knowles, Senior Economist at commercial data & analytics firm, Dun & Bradstreet, said: “The breakdown of OPEC+’s production agreement has predictably resulted in the collapse of global oil prices as Saudi Arabia has turned on its spigots reminiscent of its move in the early 1980s. While this must be good news for car drivers and household heating bills, the move will bring crisis to a number of sectors already reeling from the uncertainty driven by COVID-19. Demand is expected to be revised even further downwards as we see school closures, working from home policies implemented and large gatherings cancelled as countries go into lockdown. At Dun & Bradstreet we are continually monitoring the economic and supply chain impact of COVID-19, and have already downgraded the country risk rating outlook for countries such as the UK, Italy, China, Singapore and South Korea.

“If the agreement is not renewed quickly, the hugely indebted US shale oil sector could face significant problems and its output become unprofitable. The potential liquidations will feed through into those companies which service the sector producing a secondary rounds of bankruptcies. In turn, the banking sector may well be hit, while capital markets, particularly US junk bonds, are already under pressure.

“Our Global Business Impact (GBI) Score is at its highest ever level and risks highlighted in Dun & Bradstreet’s Q1 Global Risk Report includes the potential impact of US-Iranian tensions on the transport of oil via the Persian Gulf and subsequent effect on prices.”