Chris White Tech Reporter
March 09, 2020 11:07 AM ET
Oil prices dropped Monday as Saudi Arabia and Russia haggle over whether to reduce crude production amid fears that coronavirus will hamper air travel and potentially wreck the global economy.
Prices fell into the $30s as the Saudis push for a cut in output to prop up prices, while Russia went the other way, and decided to infuse the market with hundreds of thousands of barrels of oil, according to The Washington Post. Moscow is worried that the U.S. will use shale oil to take advantage if Saudi Arabia ease off production.
Basement-low oil prices could substantially impact oil companies and the global markets, which are already being hurt by fears related to coronavirus. Brent crude dropped to $35 per barrel; and the price of West Texas Intermediate crude fell to $32 from $41 per barrel, a four-year low.
“From the point of view of Russian interests, this deal [to cut production] is simply meaningless,” Mikhail Leontiev, a spokesman for the Russian oil giant Rosneft, told a Russian media outlet Sunday night.
He said the U.S. would be sure to step up shale production if production is cut.(RELATED: REPORT: Chinese Censors Jumped In To Suppress Online Messages Warning About Coronavirus Spread)
“We, yielding our own markets, remove cheap Arab and Russian oil from them to clear a place for expensive American shale. And to ensure the efficiency of its production. Our volumes are simply replaced by the volumes of our competitors. This is masochism,” Leontiev added.
President Donald Trump imposed sanctions on Rosneft in February for transporting Venezuelan oil. The president says Russia is propping up the Maduro regime in shipping oil to the socialist country.
Some analysts said the problem could metastasize, dropping oil prices still further.
″$20 oil in 2020 is coming,” Ali Khedery, a former U.S. official in Iraq, wrote Saturday on Twitter. “Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc. — may prove existential 1-2 punch when paired with COVID19.”
Others believe a market overreaction to the virus spread could trigger an actual emergency.
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Occidental cuts capital spending by about 45% to between $3.5 billion and $3.7 billion, from its earlier forecast of between $5.2 billion and $5.4 billion. Payouts to shareholders are cut by 86%.
Occidental is one of America’s largest shale oil producers.
I wonder where the new breakeven price is for fracked shale oil and gas?
Back in the first price collapse in the mid 2010s the Saudis thought they were going to strangle the frackers. Only the frackers were learning how to frack cheaper.
Hey I know! Let’s go frack in NY state!
Can anyone clarify for me: I thought airplanes burned kerosene. Is kerosene derived from crude oil?
With lower oil prices comes lower gasoline prices comes increased gasoline usage. This will only increase demand.
The cure for lower oil prices is lower prices.
A slowdown in oil demand due to the corona virus will probably be short-lived. Right now, lots of people are in panic mode, because they believe that corona virus cases in countries like Italy will continue to grow exponentially unless everybody goes into quarantine or lockdown.
But even now, the number of new cases of corona virus in China is decreasing, only three months after the original outbreak. Young people seem to be naturally immune to the virus, suffering only mild symptoms, and the average age of those dying from corona virus is 80 years. So, as the disease progresses, old or sickly people will probably isolate themselves, while younger people (who comprise the working class) will realize that the panic is overblown, and start going about their business, just stay away from their grandparents.
The corona virus is well adapted to cold weather, but spring starts in another 10 days, and warmer weather will help slow the spread of this virus. By late spring or summer, the virus will be on the wane, and people will want to return to life as usual, with more traveling and oil consumption.
If world oil prices temporarily drop to $30 per barrel or less, those oil wells whose production cost is higher will simply stop pumping, and wait for better times. This will then provoke a shortage, which will cause prices to rise, until some of the marginal wells can re-open.
The US fracking industry would not be down for long, for two reasons. Russian or Saudi crude oil may be cheap if it is sold in those countries, but the cost of shipping it across the ocean to refineries along the Gulf of Mexico make it more expensive when it reaches the USA. Also, fracked crude from West Texas or North Dakota is lighter, and contains much less sulfur than Middle Eastern oil, so that a barrel of fracked crude, even if it is more expensive, yields more light products (gasoline, jet fuel, and diesel) than Middle Eastern crude, and requires less hydrogen in hydrotreaters to meet sulfur specifications.
Those who are in panic mode now need to take a few deep breaths and think things through. Markets can go through wild swings, but eventually supply adjusts to demand and price, and the market settles down. The corona virus will probably be a distant memory, like a bad dream, by this coming June. This too shall pass, and life goes on.
The bench mark prices like ‘West Texas intermediate’ have fallen considerably, its not just prices in Middle east. In fact WTI can only be piped to Cushing Oklahoma, the main distribution point
More importantly, anyone like to offer suggestions on where the Leopard in the thumbnail picture is from?
I want to say Panzer Museum in Munster.
Metadata for the picture suggests War Museum, possibly London.
The cure for low oil prices has always been low oil prices.
The longer the low, the bigger effect on supply, the longer the high resulting.
Boom bust, supply demand, the pendulum swings…..