Swing And A Miss

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What's going on?

The world’s biggest oil-producing nations met on Thursday to discuss lowering their output before G20 oil ministers do the same on Friday – but all of them seem to be struggling to keep their eyes on the ball.

What does this mean?

Thursday’s meeting was a long time coming: Russia and Saudi Arabia have been embroiled (nailed it) in a price war for a few weeks now, producing more oil than anyone needed. So with supply massively outweighing demand, the slippery elixir’s price took a tumble. And when the oil price is this low, several oil-producing countries spend more money extracting it than they make selling it – which puts pressure on their national budgets.

The mooted agreement between the 14-nation coalition known as OPEC and its allies like Russia – collectively called OPEC+ – would strike a better balance between supply and demand, and that might push oil’s price up. That is, as long as everyone keeps up their end of the bargain – which hasn’t always been the case…

Why should I care?

For markets: Free shrugs.

Cynical investors aren’t all that fussed whether a deal’s actually ratified given that oil’s price already jumped up last week and again on Thursday. Likewise, oil companies’ stocks have been the US’s best performing this month after early reports of an agreement. That suggests the deal’s already “priced in”, even if there are no production cuts until May. Those same investors might also question whether – with demand cratering alongside the global economic outlook – any agreed-upon cuts would actually boost oil’s price.

For you personally: Plastic fantastic.

Economists have cautioned that the unprecedented economic support from the world’s central banks and governments could eventually cause too-high inflation, but that might not happen if the oil price stays low. Oil’s a key constituent of plastic, which means you might see the lower production costs reflected in the lower prices of everything from sneakers to toys. That would, in turn, help keep a lid on overall price hikes.

Originally posted as part of the Finimize daily email.

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