The Organization of the Petroleum Exporting Countries (OPEC) and key non-OPEC allies (collectively known as OPEC+) failed to reach an agreement to trim their oil production by another 1.5 million barrels per day (bpd) on March 6, 2020 after non-OPEC refused to support OPEC's deeper production cuts. As their existing agreement is scheduled to expire in March 2020, Saudi Arabia has launched an aggressive move to push forward a new round of negotiations for additional production cuts among OPEC+ by slashing futures crude oil prices for April by USD6-8/ barrel, sending global crude oil prices plummeting. The move has dealt a big blow to Brent crude oil futures, plunging from USD45.5/barrel on Friday evening, March 6, 2020, to USD31.02/barrel on Monday morning, March 9, 2020, or declining 31.8 percent.
We at KResearch view that this will pressure global crude oil prices over the short term because low crude oil prices amid steepened economic risk from the COVID-19 pandemic do not benefit oil producing and exporting nations. However, an important factor that will dictate crude oil prices during the remainder of 2020 hinges on the timing of a new oil production agreement of OPEC+, based on the following scenario:
- If OPEC+ can reach a new deal by March 2020, crude oil prices may stay at low levels for roughly 1-2 months. If so, Thailand's headline inflation may decline to 0.2 percent, from the current 0.4 percent.
- If OPEC+ cannot reach a new agreement by March 2020, this will allow OPEC+ to increase their crude oil production as much as they wish, and this may result in a supply glut. However, if crude oil prices remain low for more than three months, Thailand may experience deflation in 2020. However, our assessment on the impact of global crude oil prices on Thailand's 2020 inflation is based on a number of economic risks, in particular the COVID-19 outbreak that may drive up prices of several product categories and Thailand's inflation overall. Due to uncertainties surrounding those risks, we at KResearch will continue to monitor them closely in order to assess the inflation rate later on.