Jeff Fawkes is a seasoned investment professional and a crypto analyst. He has a dual degree in Business Administration and Creative Writing and is passionate when it comes to how technology impacts our society.
Oil price goes down as the demand for crude keeps melting. The coronavirus attack and the failure of the OPEC meeting influence oil dynamics. On Wednesday, it reached the super low price of $20,37 per barrel via WTI, Brent and on world markets.
In 2002 it was another economic reality, where one dollar was worth much more than now. Meaning that the oil price is broke its worst support level already. Whether we will see $15 per barrel now depends on the virus statistics.
The oil market is red for three days so far. As people use less gas, the fall will continue. Quarantine rules imposed across the planet by companies and governments force people to move on feet. They will try staying at home, decreasing oil and gas usage. Russia and Saudi Arabia keep the course on decreasing the price by increasing production. They didn’t wish to save the situation by lowering the supply.
The nations will soon receive a right to extract as much oil as they want. The OPEC+ deal ends at the month-end. Louise Dickson, the analyst at Rystad Energy, says that until the production is not regulated, the price will fall:
“With each day there seems to be yet another trapdoor lying beneath oil prices, and we expect to see prices continue to roil until a cost equilibrium is reached and production is shut-in. This is the most dismal oil demand picture we have witnessed in a long time with a simultaneous collapse in jet fuel, gasoline, shipping fuel, petrochemicals, and oil used for power generation.”
But now, no one is asking for the oil.
Oil Price in America Losing Steam, Brent and WTI Sink to 2002-2003 Lows
Brent and WTI perform with a catastrophic 50% and 54% loss in one day. Goldman Sachs claims that the oil price will remain at $20. As of now, oil use falls to a daily minimum of 8 million barrels. The last time Brent went to this price level was September 2003. WTI reaching its previous negative record from March 2002.
Stephen Brennock from PVM Oil Associates claims that Saudis have some precise strategy:
“Put simply, the Saudis are in for the long haul”
During the 2008 financial crisis, the people at least were healthy and knew what to do next. Now, as the population is sick, maybe too scared, the drama heats. Worse than in 2008, consequences are unknown. In case the recession starts, the oil price fall even faster. Per Tom Essaye, co-founder of Sevens Report:
“Looking ahead, the path of least resistance is decidedly lower right now and the lower-for-longer dynamic appears to be one that is here to stay for a while, given the bearish fundamentals pointing to a likely longstanding surplus in the global oil markets”
Oil Price War Is Especially Bad for Russia
CNBC reports that the energy analysts see the oil crisis starting soon. It will last until the end of the year, per the Eurasia Group research team:
“Extensive pain from the oil price shock will accumulate over the course of 2020 and create the necessary conditions for negotiations, compromise, and probably a new production restraint agreement. Saudi policy will now revolve around inflicting pain on other producers over the short term, but its long term objective is to be the predominant market manager and price setter.”
China will refuse to buy crude from Russia due to the brutal nature of U.S. sanctions. Two big Russian oil companies, Rosneft Trading, and RNK Trading are on the sanctions list. Chinese people don’t want to buy the oil to avoid punishments, and Saudi Arabia offers a $6 discount for the Asian Region.
This looks like an act of revenge by the U.S. and Saudis, served to Russia as an answer to OPEC plans refusal. China, as always, cannot directly help Russians. Even though Russian oil export to China estimates at 40%, or every fifth barrel, extracted in 2019. Now, it seems like Russia will have to find another buyer for the supply. Not an easy task, because, who can consume as much as China?
Also, Russia is not delivering oil to the European region anymore. Europe has refused to accept it because of supply chains shutdown. Reuters report that the oil traders cannot sell any barrel via port cities. Europe is not buying Urals Oil tenders. However, Russia claims that the country has enough resources for participating in the oil war for at least 10 years.