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As if the demand shock from the coronavirus was not enough, oil markets are now being battered on the supply side as well due to the nearly four-year agreement between OPEC, Russia, and others to cut supply and support the market, has come to an abrupt end over the weekend, strategists at TD Securities report.

Key quotes

“As Saudi and other OPEC members pushed for a 1.5m bpd cut to combat the virus demand shock, Russia refused to cut further, instead opting to stop providing support for US shale.” 

“In light of Russia’s refusal, Saudi Arabia retaliated by lowering selling prices by the most in at least 20 years, offering large discounts to Europe, the Far East, and the US at the expense of Russia, and starting an all-out price war.” 

“Prices have tanked into the low $30/bbl range, with $20/bbl oil not out of the question as both supply and demand factors weigh heavily on markets.

“In terms of CTAs, we do not expect any material moves as funds were already positioned extremely short in the complex, and elevated volatility will keep excess positioning in check for now.”