US, WASHINGTON (ORDO NEWS) — Saudi Arabia increased its oil production, and a race began in the oil market for its production. Three pillars – the United States, Russia and Saudi Arabia – started a debate about who would endure whom by putting hegemony on the oil market and other oil-producing countries suffer from this. There are signs of bankruptcy everywhere.
There are no prospects for rising prices. Who is the first to admit defeat in this race?
According to the International Energy Agency (IEA), due to concerns about a slowdown in the economy due to the spread of the new coronavirus between January and March 2020, daily oil demand fell 2.5 million barrels compared to the same period last year. .
Meanwhile, from April, Saudi Arabia will increase daily production from 9.7 million to 12.3 million barrels. If this share of the increase in Saudi Arabia is added to the supply volume, the gap between supply and demand will exceed seven million barrels. It turns out that surpluses more than double the volume of imports of Japan.
Fears about increased supply have led prices in the US oil market to drop below $ 20 a barrel for a while. This level is observed for the first time in 18 years. Covering losses from a collapse in oil prices by increasing production – in a sense, the choice of Saudi Arabia, which has set its sights on preserving its share, is rational. The fact is that few states can increase production following the example of this country.
UAE and Iraq intend to stick to increased production. It is assumed that the Russian Rosneft will also increase production by 300 thousand barrels, but there were no more significant statements about the increase in production.
According to the IEA, the opportunities for raising production at the main OPEC members as of the end of January are as follows: Algeria – 20 thousand barrels per day; Angola – 40 thousand barrels per day; Venezuela and Equatorial Guinea – zero. Amid production exceeding ten million barrels, an increase in Russia is also negligible.
Many oil producing countries are already producing to the extent possible. In OPEC, only seven countries, including Saudi Arabia and the UAE, can increase production by more than one hundred thousand barrels. Of these, Iran is under US sanctions, and Nigeria and Libya cannot increase volumes for other reasons, including the deterioration of the domestic political situation. Saudi Arabia, the UAE, Kuwait and Iraq remain.
Oil-producing countries that cannot increase production have no opportunity to cover losses from the collapse in oil prices, so a blow to them will be serious. In addition, profits from oil and gas account for a large share in the income of these countries. The distribution of COVID-19 is superimposed on all this.
The Venezuelan government has asked the IMF to provide emergency financial assistance in the amount of five billion dollars to fight the coronavirus. Despite the fact that Venezuela has the largest oil reserves, under the anti-American administration of President Nicolas Maduro, the country’s economy collapsed.
She has to take measures against COVID-19 in the context of an undeveloped medical system and a lack of medicines, so she was forced to turn to the IMF, which Maduro had previously called the Institute of Wild Neoliberals. In turn, the IMF did not satisfy the request, saying that the power of the Maduro administration was not recognized by the international community.
Iraq, where more than 20 thousand people were infected, also asked the IMF for five billion dollars to fight the coronavirus. This is the second oil producing country in OPEC after Saudi Arabia, however, due to US sanctions, it cannot normally export oil, so the economic situation deteriorated there, and at that moment the virus spread. According to France-Presse, the last time Iraq asked the IMF for help was back in 1962, even before the Islamic Revolution.
African oil-producing countries also suffer from a collapse in prices and COVID-19. The virus has spread to more than 40 countries out of 54, but given the backward medical system, infection is only just beginning. Nigeria, with Africa’s largest population and economy, has strengthened vigilance against mass infection. It is the largest oil producing country in Africa. 90% of export volumes are oil. Therefore, for Nigeria, restoring oil prices is a major concern.
“Perhaps OPEC members and countries outside this organization need to discuss production cuts again,” said Nigeria’s oil minister Timipre Silva. He expressed hope for the resumption of agreements to reduce production between Saudi Arabia, the head of OPEC, and Russia, representing countries that are not members of OPEC.
Algeria, chairing OPEC this year, expressed its readiness to discuss the matter with other OPEC members. Mexico, which is not a member of OPEC, is ready to mediate between Russia and Saudi Arabia. Oil-producing countries, whose domestic political situation may destabilize if oil prices do not recover over time, try to find a way out as quickly as possible.
Saudi Arabia is unhappy that, during the operation of the agreement to reduce production, only it complied with while other countries violated them. In fact, Saudi Arabia, most likely, will not just change its decision to endure until Russia “sinks”.
At the same time, Russian President Vladimir Putin is closely watching American shale oil. It is unlikely that he will become closer to Saudi Arabia. While the “trinity” is competing in who lasts longer, OPEC members can begin to break away from the organization, because they will not be able to maintain this pace.
In this case, the scenario voiced by the professor at Teikyo University, Heisei Shigeru Sudou, can be realized: “OPEC can again be reformatted into an organization consisting only of the oil-producing countries of the Persian Gulf, which have large oil reserves and low production costs.”
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The article is written and prepared by our foreign editors from different countries around the world – material edited and published by Ordo News staff in our US newsroom press.