Russia: "Oil Price Crash, Temporary Phenomenon in Futures Market... OPEC+ Will Respond If Necessary"

[Image source=Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Alexander Novak, Russia's Minister of Energy, on the 21st (local time), described the recent oil price crash as a temporary phenomenon in the futures market and stated that OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC allies) will take measures to respond to the oil price decline if necessary.

According to TASS news agency, Minister Novak said on the day, "OPEC+ countries are closely monitoring the current situation. We have all possibilities for response if needed," adding, "Do not exaggerate the situation." Regarding the previous day's crash in West Texas Intermediate (WTI) crude oil futures prices, Minister Novak pointed out that it was a phenomenon in the "paper market," where derivative financial products are traded rather than actual crude oil, caused by the actions of speculators.

This assessment refers to the WTI May futures price crash into negative territory as a temporary phenomenon in the derivatives market. On the previous day at the New York Mercantile Exchange (NYMEX), May delivery WTI closed at -$37.63 per barrel, a 305% plunge compared to the previous trading day. This was the first time in history that international oil prices fell below zero.

Minister Novak interpreted, "The WTI price crash that occurred yesterday (the 20th) was related to large-scale selling at the close of May delivery futures trading (on the 21st) and the possibility of storage saturation." He added, "Currently, the oil market is extremely volatile due to a sharp drop in demand linked to COVID-19 response measures, storage saturation, and uncertainty about the timing of international economic recovery."

Minister Novak also forecasted that this volatility will continue until the implementation of the OPEC+ production cut agreement starting next month, participation in production cuts by oil-producing countries not part of OPEC+, and the easing of COVID-19 restrictions.

The 23 oil-producing countries participating in OPEC+ held an emergency video conference on the 12th and agreed to cut oil production by 9.7 million barrels per day for two months from May 1 to the end of June. Russia and Saudi Arabia each agreed to reduce production by 2.5 million barrels per day.