US, WASHINGTON (ORDO NEWS) — The fall in international oil prices has been going on for several weeks. Although central banks and governments in different countries have taken incentive measures to provoke a temporary increase in oil prices, the spread of the coronavirus epidemic continues to nullify expectations of global oil demand, and international oil prices continue to fall.
Faced with many unexpected risks that overlap, people ask themselves: where is the “bottom” of world oil prices?
From a historical point of view, every time an oil crisis arises, a geopolitical conflict may arise as a reason for it, where oil is used as a weapon, but ultimately, changes in oil prices should still be determined by supply and demand: changes occur either because of limited supply, either due to insufficient demand. However, this time the problem is not only in demand, but also in supply.
According to previous forecasts by Goldman Sachs, global oil demand this year will drop to an average of 1.1 million barrels per day. Deputy Energy Minister of Russia Pavel Sorokin recently said that measures to combat the spread of the new coronavirus epidemic have led to a decrease in daily oil demand in the United States, Europe and Asia to 15-20 million barrels.
In addition, due to the fact that neither Saudi Arabia nor Russia intend to concede in the price war, each oil-producing country has significantly increased oil production. In the first and second quarters of this year, the world’s daily supply surplus of oil is expected to reach 3.9 million barrels and 5.7 million barrels, respectively. At the same time, total global oil reserves, including strategic US reserves, will amount to 1.1 billion barrels.
Therefore, that a situation of serious oversupply in the global crude oil market will be difficult to change in the short term. Therefore, there are many pessimistic forecasts on the market that the price of crude oil may continue to fall below $ 10 per barrel.
Nevertheless, several large energy consulting companies are still sticking to old forecasts, claiming that world crude oil prices will return to around $ 30-40 per barrel in the second half of the year.
Currently, while the international community is joining forces to fight the epidemic of coronavirus pneumonia, will the two sides of the price war, Saudi Arabia and Russia, be able to reconcile? The answer to this question is still difficult. According to foreign media reports, last week Algeria, the current chairing country at OPEC, called on the OPEC secretariat to get together, but Saudi Arabia declined to attend.
Sources say that other OPEC members were unable to recognize that the meeting had achieved positive results, since only the personal presence of both Saudi and Russian leaders should solve the problem of price war between the two countries.
At present, Saudi Arabia’s position is still tough: it reiterated that in the next few months it will continue to increase oil production to 12.3 million barrels per day, and that its daily export volume reached the highest level in history – 10 million barrels. Market analysts believe that Saudi Arabia’s intention to continue the price war is damaging its long-standing reputation as an “oil price stabilizer”.
If Russia is not able to return to the negotiating table in the short term, the Crown Prince of Saudi Arabia, Muhammad ibn Salman Al Saud, will not only face various domestic political problems and pressures due to the financial exhaustion of the state, but will also lose a credit of trust abroad, especially from the United States .
Obviously, the US shale oil and gas industry will be the biggest loser in this price war. Many oil companies were forced to close mines that were opened only four years ago. More and more small and medium producers fall into the debt hole, and thousands of oil workers have lost their jobs. However, it is strange that Donald Trump was able to get unexpected political benefits from this situation.
According to preliminary estimates, for every $ 10 reduction in crude oil prices, a gallon of gasoline will cost 25-30 cents cheaper, which means that American families will save an additional $ 1 billion in annual expenses. The United States is known as the “country on wheels”, so the cheapness of gasoline is undoubtedly an important problem in the United States, especially in the election year.
As oil prices continue to fall, according to forecasts, Saudi Arabia and Russia can only continue to follow this trend, and it is hard to believe that the situation will change radically. Currently, oil-producing countries are only concerned about one thing – the struggle for share in the international market.
An increase in exports may bring a small profit, but a quick sale and makes it possible to earn more money. Market analysts generally believe that the impact and the impact of the epidemic on the global economy are difficult to predict, and in the short term, crude oil prices will be subject to serious fluctuations.
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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.