The rampant spread of coronavirus has turned busy streets around the world into quiet, abandoned highways. Few cars and trucks on the road mean that significantly less fuel is needed as millions of people stay at home.
“An unprecedented reduction in demand, as the economy has largely stopped worldwide, is the most important factor oil prices Right now, it’s compounded by uncertainty about how long this situation will last, ”says Christian Baumeister, assistant professor of economics at Robert and Irina Bozson. The shale sector was already in a weak spot due to high debt and financing difficulties even before such a massive collapse in demand. "Shale oil exploration projects in the US have already been suspended, and the number of drilling rigs has declined."
By early March The White House has already discussed rescue for the shale industry this is defeated not only by the deadly pandemic, but also by the separate efforts of Russia and Saudi Arabia to control oil production marketOnce the allies in control of production and pricing to their advantage, the two oil giants are currently conflicting, negotiations are collapsing, and the Saudi Kingdom is starting to flood the market with fuel at a bargain price.
“The current tension may well lead to a new order in world oil markets – two possible scenarios are the collapse of OPEC or an alliance with non-OPEC members. The latter is not unprecedented. In March 1999, OPEC and non-OPEC countries (Norway and Mexico) agreed to cut oil production to prices that hit a record low of $ 10 per barrel after the Asian financial crisis, which drastically reduced oil demand, ”said Baumeister. "We already know that Russia will not be among the countries joining such a deal, since its refusal to cooperate with the first attempt led to the extreme position of Saudi politics."
The Bomeister doubts the ability of the Saudi Kingdom to withstand a market flood.
“I still have doubts that this is achievable both from the side of physical production and from the budget budget. In addition, this will cause difficulties in other OPEC countries, which may lead to the collapse of OPEC. ”
Although the Bomeister definitely anticipates a roller coaster ride in the oil markets in the coming weeks, she believes there might also be a small silver lining.
“Currently, oil reserves in 36 countries of the Organization for Economic Cooperation and Development (OECD), including the United States, are low by the latest standards, which suggests that some of the initial excesses, whether due to overproduction or lack of demand for petroleum products, may be absorbed into storage. However, this is only a temporary buffer; after the storage is full, there is only a mechanism that prevents the pumping of oil. "
University of Notre Dame
The expert says that the coronavirus economy can bring the American oil shale market to its knees, destroy OPEC (2020, March 31)
retrieved April 1, 2020
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