30% in decline - oil price plunges massively

At the beginning of the week, prices on the oil market plunge massively. 

On Monday morning, prices for North Sea crude oil and US oil each fell by around 30 percent - the sharpest percentage drop in almost 30 years.

Economic impact of the coronavirus and the oil price war. Image showing 30 percent drop in the price of oil.

The reason for the oil price crash is considered to be the failed negotiations of the oil cartel Opec with the producing countries such as Russia, which are grouped together in the so-called Opec+. In addition, the concern about the economic consequences of the coronavirus crisis is also a burden. Oil prices have thus fallen to their lowest level since the beginning of 2016.

A barrel (159 litres) of North Sea Brent crude cost 32.83 US dollars at the last count. 

Thus, the price was 12.44 dollars lower than on Friday. The price of American crude oil of the WTI variety dropped by 12.44 dollars to 28.84 dollars. Market observers spoke of the strongest percentage slump on the oil market since the Gulf War in 1991.

Oil price: Opec demands tighter production limit

Opec on Thursday called for a tightening of the current production limit by 1.5 million barrels (159 litres each) of oil per day, also in response to the economic consequences of the new coronavirus.

However, the attempt to exert pressure on Russia and the other partners with this move failed. Since it was also not possible to extend the currently valid production limit, the 14 Opec members and the 10 cooperation partners will no longer have to adhere to any limits as of 1 April.

Dr. Jörg Krämer, Commerzbank expert, on the disagreement between the funding states: "Of course, conflict has long existed among the members of Opec+ as to how the burden of the necessary production cuts should be distributed among the individual members.

But the fact that the dispute escalated in this way at the weekend is mainly due to the corona virus, which is severely slowing down the global economy and thus the demand for crude oil.

Following the fall in oil prices, shares in oil companies suffered

After the recent drop in oil prices, the shares of the state-owned Saudi oil company Saudi Aramco had lost considerable value on Sunday. On the Riyadh stock exchange, the shares of the world's largest oil company fell by a peak of 9.4 percent, closing the day down 9.1 percent at 30 Riyals (7.08 euros). The shares are thus quoted below the issue price of 32 Riyal at the IPO in mid-December.

Just under three months ago, Aramco completed its largest IPO to date, replacing the technology heavyweight Apple as the most valuable company in the world. On the first day of trading on the Saudi Arabian stock exchange in Tadawul, the shares of the state-owned company were traded at the highest possible price of 35.2 Riyal. Aramco initially raised 25.6 billion dollars by selling only 1.5 percent of its shares. The company thus broke the record set by the Chinese trading platform Alibaba in 2014 for the largest IPO.

Fall in oil price will influence inflation

Commerzbank expert Krämer sees the slump in oil prices as an indicator of the massively increased economic risks. Commenting on the effects, Krämer said: "The drop in oil prices will not only affect the economy, but also inflation. If the oil price remains at a good 30 dollars, inflation in the euro zone could fall to the psychologically important mark of 0 percent in May".

Commerzbank expects that the European Central Bank (ECB) will react to the fall in oil prices and its consequences for the economy and inflation. Krämer: "After the collapse of the oil price, we expect more than ever that the ECB will significantly ease its monetary policy at its meeting on Thursday. It is likely to increase the volume of its bond purchases from 20 to 40 billion euros for a limited period of six months, for example. We also expect the deposit rate to be cut by 10 basis points to -0.6%.