This week's dramatic drop in oil prices that prompted panic selling on stock markets will not last long, a Canadian business analyst has said.
"Russia will blink long before Saudi Arabia will blink, and agree to a production cut," said Ian Lee, associate professor in the Sprott School of Business at Carleton University in Ottawa.
"It is in both of their interests to have oil prices go back up -- and I think that within the next two weeks they're going to come to a deal and take a lot of supply off the markets. And by then, China will be back on stream as the coronavirus looks like it has run its course there, so demand from China for oil will be back," Lee added.
But Saudi Arabia remains in the driver's seat. On Tuesday, the country's state-run oil giant Saudi Aramco announced it will increase its oil production to 12.3 million barrels a day in April.
The move, which followed Russia's refusal to cooperate on cutting production as requested by the Organization of the Petroleum Exporting Countries (OPEC), prompted a 25-percent plunge in the price of crude, the largest decline since the 1991 Gulf War.
In Canada, energy companies were hit hard. Calgary-based Cenovus lost more than half of its value at the close of trading on Monday.
The Toronto Stock Exchange experienced one of its darkest days on Monday when its benchmark index ended down by more than 10 percent, its biggest decline since the Black Monday crash of Oct. 19, 1987.
However, Lee projected that within six months, the oil markets will be "back into balance," and with them, the capital markets.
"It's not in the Saudis' interest to have oil at 30 dollars a barrel, and Russia is getting clobbered on extraction costs," he said.
Future demand for energy will also drive the markets upward, Lee added.
"The world's population will grow by 2 billion over the next 30 years... and low-income and middle-income countries are developing quickly and consuming more energy, which principally means oil and gas, which accounts for 80 percent of the total energy supplies."
Editor:Cherie
