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Chart of the Month |
A Price War Erupts in the Oil Market

March 16, 2020  | by Ivo C. Nenin, Deborah Spalding

Market Commentary

Oil prices declined over 21 percent on March 9, 2020, the largest single-day decline since January 1991 during the Gulf War[1]. There was optimism prior to the OPEC (Organization of Petroleum Exporting Countries) meeting in Vienna on March 5 – 6 that Russia and Saudi Arabia would agree on supply cuts in response to the coronavirus-driven reduction in oil demand. This quickly disappeared as Russia refused to agree to the supply cuts. On March 7, Saudi Arabia responded by announcing a large output hike, beginning an all-out price war. For the last four years, OPEC and Russia, referred to as OPEC+, have been maintaining oil price stability by keeping production unchanged, allowing shale producers in the U.S. to benefit by increasing output from 9.0 MB/d to 13.0 MB/d. The recent price moves will create significant headwinds for U.S. producers, as many are already operating with negative cashflows and may be forced to shut down wells. As a result, high yield credit spreads have blown out – approaching levels last seen in 2016.

Chart of the Month | A Price War Erupts in the Oil Market

[1] As measured by the price of West Texas Intermediate (WTI) crude oil.

Authors

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Ivo Nenin is a member of the Commonfund Asset Management Investment team and is primarily responsible for investment monitoring, rebalancing and reporting for investment portfolios with a focus on our global multi-asset program. Ivo previously assisted in managing Commonfund’s commodities program and as a fund analyst focused on valuation and reporting for the commodities and equity funds. Prior to Commonfund, Ivo worked at AIG in their Domestic Brokerage Treasury Department. Ivo earned an M.B.A. from New York University’s Stern School of Business in Finance and Management and his B.S. in Finance and Accounting from the University of Bridgeport. He holds CFA and FRM designations as well as FINRA 3, 7 and 63 licenses.
Ivo C. Nenin
Director, CFA, FRM
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Deborah Spalding co-leads the Commonfund Asset Management Investment team and oversees the design, tailoring, and implementation of custom investment solutions for clients. She also leads the firm’s sustainable investment efforts. Deborah serves as a member of the Commonfund Asset Management Executive Group and the Investment Committee, and chairs the Commonfund Asset Allocation Committee. Prior to joining Commonfund, she was the Chief Investment Officer for the State of Connecticut’s $30 billion Retirement Plans and Trust Funds. Previously, she was a Managing Partner at Working Lands Investment Partners, LLC, an independent investment management firm that invests in rapidly growing environmental markets. Prior to that, she held several executive level positions including Executive Vice President and Head of International Investments for Schroders Investment Management N.A. and Managing Director and Head of International Institutional Investments at Scudder Kemper Investments. She began her career as an equity analyst at SKB & Associates in San Francisco. Deborah received a B.A. in International Relations and Asian Studies from Tufts University and holds graduate degrees from Harvard University, University of California Berkeley and Yale University. She is a past Board Chair and a member of the investment committee of the National Wildlife Federation, and an advisory board member of the Center for Business and the environment at Yale and is a Lecturer in Forest and Ecosystem Finance at Yale.
Deborah Spalding
co-Chief Investment Officer, CFA
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Disclaimer

Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.