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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Yergin: No End In Sight For The Oil Price Crisis

Rebalancing the oil market in a context of dropping demand and rising supply will take a while, energy expert Daniel Yergin told media, as quoted by Reuters.

With demand subdued more than usual because of the coronavirus pandemic and the oil price war between Saudi Arabia and Russia adding more barrels to the market, it will be difficult for the market to rebalance, Yergin said.

“It’s a problem of an oil price war in the middle of a constricting market when the walls are closing in,” IHS Markit’s vice chairman said, adding that “Normally demand would solve the problem in a way, because you would have lower prices that act like a tax cut and it would be a stimulus. But not in this case because of the freezing up of economic activity.” 

What’s more, Yergin noted that the low prices at the pump that President Trump cheered on Twitter are not that good of news.

“Low gasoline prices ... don’t do much when schools are closed, people are cancelling all their trips, and people are working from home.”

Quarantines are expanding internationally as the coronavirus, dubbed COVID-19, marches on. Fears for economic growth have spiked on these developments, with governments considering various aid packages for businesses that will be affected by the pandemic.

Meanwhile, Russia has plans to raise production by 300,000 to 500,000 bpd from next month and Saudi Arabia is aiming at adding close to 3 million bpd to daily production in an attempt to force Russia to reconsider its position on production cuts.

According to some, such as Continental Resources’ Harold Hamm, the oil war is actually an attack on U.S. shale, which is more sensitive to price movements than both Russian and Saudi oil producers. Yergin, however, has rejected this explanation for the Saudi-Russian game of chicken.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on March 13 2020 said:
    The declining global oil demand, the so-called oil price war between Saudi Arabia and Russia and the growing glut in the market are by-products of the coronavirus outbreak. However, the glut was there long before the outbreak but has been augmented further by at least 1.0 million barrels a day (mbd) to an estimated 5.0 mbd by the outbreak. Once the outbreak is controlled, a re-balancing of the global oil market will accelerate quickly.

    My reasoning is based on two factors. The first is that the fundamentals of the global oil market were positive before the outbreak. It is the lack of normal economic activities resulting from the coronavirus that has affected them. The second is that China and to some extent the whole world will behave like a person who has been starved of food for a long time so their appetite would be rapacious for crude oil imports. That is why I believe that once the outbreak is declared over, global oil demand and prices will rebound quickly recouping all their previous losses.

    Saudi Arabia’s price war against Russia is a phoney war. Saudi Arabia has never ever had a production capacity of 12.5 mbd and will never ever achieve one. So the talk about raising its production by 3.0 mbd is a farce. Saudi production peaked at 9.65 mbd in 2005 and has been in decline since. Saudi Arabia can at best produce some 8.0-9.0 mbd with another 700,000 barrels a day (b/d) to 1.0 mbd coming from storage. This is so because its current production is coming from five giant but aging and fast-depleting oilfields discovered more than 70 years ago.

    Moreover, Saudi Arabia can never win a price war against Russia. Russia’s economy can live with an oil price of $25 a barrel compared with a price far higher than $85 for Saudi Arabia.

    And whether or not the price war is aimed against US shale oil, the fact remains that it accelerates its demise.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Charles Ewing on March 20 2020 said:
    A by-product of existing lowered production by OPEC members has generated incidental support for the US shale industry. The shale sector in the US wasn't a direct target of Russian energy policy. This was , however, an ancillary issue pointed out before the OPEC meeting, in Moscow, as another benefit that would accrue to supporting Russian pricing and not moving lower.
    Putin's predictable move to support his energy reserves and market pricing resulted in no agreement . He decided to protect Russian strategic reserves and declined to support us shale with another reduction in output. He would like higher prices and will stay true to his belief in protecting State Resources at the expense of OPEC quotas. Increased national economic development depends on rational resource consumption for increasing GDP and cash. He has the stronger hand now, although it will be painful economically for a while. Market development in Asia and the Middle East are his goals and the Saudis are vulnerable. This is a game changer for now. Dr. Salameh points out a critical fact; don't bluff a competitive producer with higher production you can't deliver. Look for $20.00 -25.00 Brent and WtI under $20.00, soon.

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