By Our Reporter
Financial markets in Asia and beyond turned into a sea of red on Monday as oil prices slumped to their lowest level since the first Gulf War after Saudi Arabia lowered its official selling price, adding to investor panic over the coronavirus outbreak.
Talks between Saudi-led Petroleum Exporting Countries (OPEC) and Russia broke down on Friday after the world’s biggest oil producers failed to agree to production cuts, sending crude prices plunging more than 30 percent to below $30-a-barrel on Monday.
On Friday, OPEC’s 14 members led by Saudi Arabia failed to agree on with Russia on output cuts to combat falling fuel prices arising from low oil demand.
The world’s oil supply has continued to exceed demand in recent weeks as the Coronavirus epidemic halts the world’s economic growth.
The OPEC and non-OPEC alliance has worked previously to hold up oil prices around the world with parties agreeing to periodic adjustments to output in relation to prevailing demand.
Last week’s events are in essence seen as a collapse to the alliance and a major shock to the global oil market amidst uncertainties generated by the Coronavirus pandemic.
The impact of the virus’s spread on the industry is becoming apparent by the day with global oil demand being set to register its first full year of decline in more than decade from the deep contraction witnessed in China which has triggered major disruption to travel and trade.
In 2019, China accounted for more than three-quarters of the global oil demand growth.
According to data from the International Energy Agency (IEA) China is set to see a massive 1.8 million barrels per day (b/pd) slash to oil demand in the first quarter to the end of March as factories shutdown while large-scale confinement measure curb travel.
The drop is expected to set-off a decline in global oil demand by around 90,000 barrels a day in the first annual fall since 2009.
With a fall-out among producers, output by both OPEC and non-OPEC members will remain at the discretion of each party spinning further uncertainty to global oil demand and supply in the next nine-months.
The plunge in oil prices however comes as good news to net oil importers such as Kenya as it is indicative of future downward adjustment to pump prices.
The Energy and Petroleum Regulatory Authority (EPRA) is set to adjust its maximum pump prices on Saturday with all indicators pointing to a downward review to costs.
Nevertheless, the magnitude in price adjustment takes into account a lag in imports with changes being priced on the average landed cost of each crude petroleum.
During its February 14 review, EPRA impacted a Ksh.2.67 and Ksh.2.13 increase in the cost of petrol and diesel per litre while the cost of kerosene reduced by Ksh.1.26 a litre.