With WTI crude seeing its third-worst trading day on record, Russia is beginning to feel the squeeze as it sees its oil and gas income tumble while it has to fight for its market share in key markets such as Europe and Asia.
On Wednesday, Russian President Putin’s Press Secretary Dmitry Peskov stated that Russia would sure like to see oil prices improve, but that his country has not yet reached out to OPEC to discuss measures.
Bloomberg quoted Peskov as saying that “Of course it’s a low price, we would like to see it higher,” adding “We’re very closely monitoring the situation on global oil markets, analyzing the situation, trying to make forecasts for the near- and mid-term future,”
Moscow’s decision to not deepen output cuts triggered an unexpected response in Riyadh, which decided to leave behind the OPEC deal and start pumping flat out.
Saudi Arabia’s latest claim of supplying markets with 12.3 million bpd during the next couple of months has triggered a further collapse in oil prices on Wednesday afternoon, with WTI collapsing 25% as the Dow Jones Index shed more than 20,000 points, effectively erasing all gains since U.S. President Trump got sworn in.
Next to Russia, OPEC’s no.2 producer Iraq urged the cartel to come together and find a solution to stop the bloodbath in oil markets. According to Oilprice.com’s Irina Slav, ‘’Iraqi Oil Minister, Thamer al-Ghadhban, has asked OPEC’s head, Mohammed Barkindo to call an extraordinary meeting of OPEC+ to ‘discuss all possible ways’ to reverse the oil price slide’’.
At this moment, it seems unlikely that Saudi Arabia and the UAE will change course and listen to pleas from Iraq, Venezuela, Mexico and even U.S. senators. The oil war is unlikely to end soon, and as I mentioned yesterday, national prestige, honor and political power are driving this geopolitical game of thrones in which no party wants to hand an easy victory to the other.
Russia and all the other producers are prepared to face a lot more pain before taking a seat at the negotiating table again.
By Tom Kool for Oilprice.com
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So, i will start getting concerned, when we reached that level on the pricing. This type of shifting in crude prices and demand increasing 500,000 b/d of crude oil per year has been occurring for years. Trust me when Russia and Saudi's have had enough the price will rebound back to current levels.
I hate to see employees impacted, but one of these days, employers are going to realize their is a cost benefit ratio of every 6-8 years of laying people off that young people will wake up to the fact that they prefer to work for long term employers instead short term oil industry and at that point oil companies cannot attract the better employees coming out of college.
Sooner or later, someone at these companies are going to realize that this practice is costing the company in the long term. Incentivizing senior management to cut personnel because of the cost savings next year because the bosses get big bonuses is actually quite stupid, but it is going to take someone in the Human Resources industry to do a study on this trend. Good luck
Saudi Arabia not Russia started a price war which it can neither win nor be able to flood the global oil market with oil as it did in 2014. Russia can live for years with an oil price of $25 a barrel compared with $85 or even higher for Saudi Arabia. A continued price war could bankrupt Saudi Arabia.
Furthermore, Saudi Arabia doesn’t have the production capacity to flood the global oil market this time without depleting its stored oil. What happens then if the Houthis of Yemen decide suddenly to attack critical Saudi oil assets thus crippling oil production. The only way the Saudis can then meet their customers’ obligations is by drawing on their stored oil as was the case when the Houthis destroyed half of Saudi oil production in September 2019.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
1) Oil inventories are building so rapidly, that we're going to hit the global storage capacity within months. This is fine, but it will take years to burn off that extra supply even once Saudi and Russia reach a deal (which they likely will), during which time oil prices will remain abnormally depressed.
2) This was a bad time for an oil war, because demand has collapsed due to quarantine and "stay in place" orders around the world.
3) Everyone agrees on those two points. What they're missing is that petroleum demand was already starting to face demand pressure due to the (shockingly rapid) transition of the global vehicle industry from gasoline and diesel powered vehicles to battery electric vehicles. The speed at which automotive companies have been retooling their future commuter vehicle lineups is stunning and unexpected.
Previous estimates from only a couple of years ago predicted that it would take until 2040 for half of new commuter vehicle sales to convert to electric. The rapid response of the global automotive industry has taken everyone by surprise, with new estimates predicting that half of global car sales will be electric by 2026 to 2027 (depending on the study and the assumptions they make). New sales are now expected to be nearly fully electric sometime between 2030 and 2032. (The growth curve is exponential, hence the short timeline.)
4) Obviously we all know that gasoline isn't the sole driver of petroleum use (there is also plastics, jet fuel, etc etc etc), but it's a big one. Without gasoline consumption, global petroleum consumption will plummet. High cost production in places like Canada and the US will cease completely. Only the lowest cost production in places like Saudi Arabia will be able to continue. This will devastate the industry, with countless mergers and bankruptcies. The industry isn't going to disappear, but it *is* going to look dramatically different a decade from now, and it will be a fraction of its current size.