Russia was unwilling to cut production deeply, which led Saudi Arabia to decide to increase oil supply, causing oil prices to plummet. While Russia would like to see oil prices rise, it is less willing to give in and let its competitors win. Analysts warn that April could face the worst glut in history, making it the oil market’s worst month, as supply rises and oil demand takes a hit from the declared health crisis.
Russia Hope that oil prices will rise, but will not give up easily.
On March 18 (Wednesday), oil analyst Tom Kool wrote that Russia needs higher oil prices. , but will not surrender. With WTI recording its third-worst daily trading record ever, Russia is starting to feel the pressure as its oil and gas revenues fall, but it must also fight for market share in key markets such as Europe and Asia.
On March 18, Russian President Vladimir Putin’s press secretary Dmitry Peskov said that Russia definitely wants to see oil prices rise, but Russia has not yet discussed measures with OPEC.
Peskov admitted that the current oil prices are of course very low, and Russia hopes to see oil prices rise. He also added: “We are closely monitoring the situation in the global oil market, analyzing the relevant situations and trying to predict oil prices in the near and medium term.”
Russia’s decision not to deeply cut production has triggered Saudi Arabia’s unexpected reaction. Saudi Arabia decided to abandon the production reduction agreement and began to increase oil production. Saudi Arabia’s latest statement stated that it will provide the market with 12.3 million barrels of oil per day in the next few months, which triggered a further decline in oil prices, with WTI crude oil prices falling by 25%.
Following Russia, OPEC’s second-largest oil producer Iraq urged the group to come together and find solutions to stop the bloodbath in the oil market.
It is reported that the Iraqi Oil Minister has asked OPEC Secretary-General Barkindo to convene a special OPEC+ meeting to discuss all possible ways to reverse the decline in oil prices.
For now, it seems unlikely that Saudi Arabia and the UAE will change course and heed the calls from Iraq, Venezuela, Mexico or even U.S. senators. As a result, Tom Kool warned that the oil price war is unlikely to end anytime soon. But in this battle, neither party wants to lose to the other easily. Russia and all other producers need to prepare for more pain before sitting at the negotiating table again.
Public health and safety incidents have severely damaged oil demand, and April 2020 may be the worst month for the oil market
Saudi Arabia and Russia gave up on production cuts, while public health security incidents impacted the global economy and suppressed oil demand, making analysts very pessimistic about the prospects of the oil market.
Several analysts believe that oil producers are facing the worst crisis in history, but crude oil prices have not yet hit bottom. The millions of additional barrels of supply promised by Saudi Arabia will take time to reach their destination. On the demand side, major economies are just beginning to slow down, and a growing number of analysts say the global economy is already in recession, which will undoubtedly hit oil demand hard.
Standard Chartered Bank wrote in a report: “Just a week ago, it was difficult to imagine how weak oil market conditions would become. However, in the past week, European and North American governments have responded to the public health crisis The response measures have restricted the movement of goods and people, which has greatly exacerbated the negative demand shock.”
As a result, analysts say that in April 2020, the oil market may face the most serious oversupply in history.
Standard Chartered Bank wrote in a report: “We now expect the largest year-on-year oil demand decline to reach 10.4 million barrels per day in April, and the annual demand decline in 2020 reached a record 3.39 million barrels per day.
Standard Chartered Bank said that in the short term, the oil surplus will peak at 13.7 million barrels per day in April, compared with an average surplus of 12.9 million barrels per day in the second quarter. By the end of the year, the buildup in oil inventories could reach a whopping 2.1 billion barrels, a 50% increase from the 1.4 billion barrels forecast a week ago.
Other analysts’ forecasts are even more dramatic. Eurasia Group ( Eurasia Group) said oil demand could fall by as much as 25 million barrels per day in the coming weeks and months.
Giovanni Serio, head of analysis at Vitol, told the Financial Times: ” Because of the combination of weak demand and oversupply, it is almost impossible to solve it through onshore storage. At some point we will need to fill all the tankers. ”
According to data from Rystad Energy, because of this low demand situation, more than 200 companies in the European oilfield services industry alone may go bankrupt, accounting for 20% of the total number of companies in the industry.
Goldman Sachs said that WTI crude oil prices may fall to US$23-26 per barrel. In fact, the bank lowered its second-quarter Brent oil price forecast to US$20 per barrel from the previous US$30. Standard Chartered Bank said: “Because Front-end prices have softened under pressure from accumulated remaining oil inventories, and we expect the contraction in activity in the U.S. shale industry to accelerate. ”
Standard Chartered now forecasts that U.S. oil production in December 2020 will be 11.87 million barrels/day, a decrease of 1.1 million barrels/day from current levels. By 2021, U.S. oil production may average 11.2 million barrels/day days, 1069 by the end of December 2021Thousands of barrels/day.
Standard Chartered Bank warned that although the most severe demand losses may occur in April, year-on-year demand may fall by 8.8 million barrels per day in May and by 7.4 million barrels per day in June. Even after the public health crisis passes, factors that will continue to drive down demand will exist as air travel activity permanently changes and corporate oil demand struggles to recover from the initial shock.
Brent oil price daily chart</p
