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A Kuwaiti trader checks stock prices at Boursa Kuwait in Kuwait City, on March 8, 2020. Photo: Yasser Al-Zayyat/AFP via Getty Images

Oil prices nosedived to four-year lows Sunday as trading resumed after Friday's collapse of the OPEC-Russia production-limiting pact, a rupture slated to increase supplies at a time when the novel coronavirus is sapping demand.

The state of play: The immediate 31% collapse when trading resumed last night was the second-largest on record behind the 1991 Gulf war, Bloomberg reports.

  • Brent crude was trading at roughly $34.94 on Monday morning, which is actually above the troughs reached since trading resumed Sunday night.
  • But consider that it was pushing $70 in early January and began Friday around $50.

What's new: The International Energy Agency slashed 1.1 million barrels per day from its 2020 oil demand forecast on Monday as the coronavirus outbreak crimps travel and economies.

  • The agency now sees a year-over-year drop in demand for the first time since 2009.
  • Their central case sees a slight 90,000 bpd annual drop, but they warn it could be significantly more. On the other hand, in a more optimistic virus containment scenario, there could still be demand growth.

Three things to watch to make sense of the oil market's unraveling...

1. A break or a breakup: It's not clear whether or when the OPEC+ alliance might resume cooperation.

  • "The lines of communication between Russia and Saudi Arabia are always open," oil analyst Ellen Wald tells Axios, noting their energy ministries are in touch on topics beyond oil production.
  • But, but, but: "Saudi Arabia and Russia have fundamentally different priorities when it comes to oil production and oil sales," says Wald, author of the book "Saudi, Inc."
  • "Whereas Saudi Arabia sees great benefit in maintaining its position within OPEC, Russia is not a member and does not care about the communal benefits of OPEC decisions," she says.
  • The question now is "which producer blinks first," per S&P Global Platts' Chris Midgley. He says in a note that while low prices will test Saudi finances, their low production costs and low debt means they can "pull on sovereign reserves and take the pain."

2. Shale patch pain: The price collapse will hurt U.S. shale producers, who are already facing tough economics and Wall Street pressure to show returns, not just boost output.

  • Look for producers to scale back. How much depends on how low things go and for how long, although companies' hedging strategies provide some cushion.
  • Goldman Sachs analysts, in a note this morning, gamed out a scenario in which U.S. oil prices were in the $30–$45 range into 2021. Producers would "meaningfully cut back activity" to preserve cash flow and balance sheets, although it depends in specific companies' hedging positions.
  • And per a note this morning from the risk analysis firm Verisk Maplecroft's Niamh McBurney: "The impact of this on U.S. shale producers, and how much they may retrench, is what OPEC, and specifically Saudi Arabia and Russia are banking on to be able to return them to their pre-2016 positions, or at least close."

3. U.S. political fallout: It's certainly a new wrinkle in the 2020 election.

  • Falling crude prices will push gasoline prices even lower, which would presumably favor President Trump.
  • But, but, but: Oil production is vital to the economy in a bunch of states, including the swing state of Colorado and of course Texas.
  • Texas hasn't voted in favor of a Democratic White House hopeful since 1976 but could be a longshot hope for Trump's opponent.
  • Democrats could make the case that the industry's pain underscores the need to push more quickly into clean energy.

Go deeper:

Go deeper

Trump bump: NYT and WaPo digital subscriptions tripled since 2016

Data: Axios reporting and public filings; Chart: Axios Visuals

The New York Times and The Washington Post have very different strategies for building the subscription news company of the future.

The big picture: Sources tell Axios that the Post is nearing 3 million digital subscribers, a 50% year-over-year growth in subscriptions and more than 3x the number of digital-only subscribers it had in 2016. The New York Times now has more than 6 million digital-only subscribers, nearly 3x its number from 2016.

Ben Geman, author of Generate
1 hour ago - Energy & Environment

Biden's emerging climate orbit

Photo illustration: Aïda Amer/Axios. Photo: Win McNamee/Getty Images

As of Tuesday morning, we know a lot more about President-elect Joe Biden climate personnel orbit, even as picks for agencies like EPA and DOE are outstanding, so here are a few early conclusions.

Why it matters: They're the highest-level names yet announced who will have a role in what Biden is promising will be a far-reaching climate and energy agenda.

Janet Yellen is back

Photo illustration: Sarah Grillo/Axios. Photo: Hannelore Foerster/Getty Images

A face familiar to Wall Street is back as a central player that this time will need to steer the country out of a deep economic crisis.

Driving the news: President-elect Joe Biden is preparing to nominate former Fed chair Janet Yellen to be Treasury secretary.

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