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The war for the oil market share between Russia and Saudi Arabia has forced the U.S. oil producers to severely cut their budgets and production outputs. The U.S. could possibly be a net importer of oil by the Q3 2020.
Amidst the ongoing oil war, the United States has cut down its oil production forecasts by over 1 million barrels a day. The collapsing oil market complimented by the heavy demand drop is threatening with the possibility of a shutdown in some of the U.S.’s biggest oil fields.
The oil markets have been crashing over the last few weeks with the ongoing oil war between Saudi Arabia and Russia. The coronavirus pandemic has severely impacted the demand for oil with its prices crashing down further. Besides, last month the non-agreement for cutting down oil production, between the OPEC+ nations, made the matter worse.
Now both the giants – Russia and Saudi Arabia – are competing for market share. As a result, these two countries have ramped up production despite the weakening demand. This has resulted in oil prices crashing down.
On Tuesday, the Energy Information Administration said that the oil production will go down to 11.76 million barrels a day through December 2020. This is down from the previous forecast of 12.99 million barrels a day. Besides, the agency has also reduced its 2021 forecast for oil output to 1.6 million barrels a day.
This report comes just a day ahead when Russia, Saudi Arabia and other OPEC+ allies will meet on Thursday. The U.S. President Donald Trump is supposedly the mediator in these talks. A day ago, President Trump commented on lower oil prices forcing the U.S. Producers to cut down production. In his statement to the reporters, Trump said:
“The cuts are automatic if you’re a believer in markets. They’re already cutting. If you look, they’re cutting back. It’s the market. It’s supply and demand. They’re already cutting back and they’re cutting back very seriously.”
Global Oil Production Forecasts
It’s not just the U.S. facing the heat of the market due to the COVID-19 pandemic. The EIA has also slashed the global petroleum forecast supply by 2.7 million barrels a day for 2020. Besides, it has also suspected a surplus supply of 11.4 million daily barrels in Q2 2020. Shaylyn Hynes, spokesperson for the energy department said that the gloomy production outlooks are due to the “unprecedented worldwide demand impacts of COVID-19 coupled with the disruptive actions of the ongoing dispute between OPEC+ nations. The Secretary is confident that both of these forces are temporary, and the market will recover”.
The extreme competition for market share between Saudi and Russia has forced the U.S. shale explorers to cut down their budgets. Thus, EIA also forecasts that the U.S. could be the net importer of oil during the third quarter of 2020. Besides, it can continue to be a net importer for months post the Q3. EIA expects the global benchmark crude i.e. Brent crude to average at $33 by the end of the year. All eyes are on Thursday’s meeting!