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The long-awaited rescue army has arrived
Starting today, May 1, the agreement entered into at the last extraordinary meeting of OPEC + came into effect, according to which the cartel could reduce oil production by 9.7 million barrels / day, which is a 10 unprecedented percent of the world’s oil supply.
There has been a very significant change in world oil policy. United States President Donald Trump has so far considered the oil cartel and the high oil prices they have imposed, because it has allowed American citizens to drive more expensively. However, in the most recent deal, it was Trump who mediated between Russia and Saudi Arabia to reach a new deal, as the US oil shale oil industry. USA It is in big trouble, with a balanced oil price of $ 40- $ 50. America would lose its energy independence, if it allowed the shale oil sector to go bankrupt In addition, it could fire 2 million jobs.
The last extraordinary meeting of OPEC +
The final agreement had to wait until Sunday, April 12, according to which
9.7 MILLION BARRELS MAY BE WITHDRAWN FROM THE OPEC + DAILY MARKET IN MAY AND JUNE, THEN IN THE SECOND MIDDLE OF THE YEAR, 7.6 MILLION BARRELS / MILLION FOR 20 YEARS AND FOR 20 YEARS, THE COURT MAY REDUCE TO 20 YEARS AND 20 DAYS.
The G20 may even contribute to this, but its impact doesn’t even come close to the immediate and sudden movement of OPEC +. The United States, Brazil and Canada can still withdraw 3.7 million barrels per day from the oil market, and the other G20 states can still withdraw 1.3 million barrels per day. However, these volumes can only disappear from the market in months and gradually, and may not even happen, Because if oil prices start to rise, market producers will be able to increase their production instead of reducing it, thanks to market mechanisms.
In Mexico, the unprecedented scale of the oil deal failed Through Trump’s personal intervention managed to salvage the deal. Therefore, despite the original proposal of 400,000 barrels / day, Mexico only needs to reduce 100,000 barrels in its production. Mexico may even withdraw from OPEC + in the next two months.
How do we get here?
The year started with another $ 60 for a light American-type oil, WTI, and $ 63.8 for the Brent North Sea. the US-Iranian tensions They helped bring oil to those heights by the end of the year, the culmination of which was when the United States liquidated a high-ranking Iranian general.
Subsequently, the coronavirus hit its head in China, and due to declining demand, the exchange rate began to drop. The big shock occurred on March 9, when oil prices fell from 25 to 30 percent after Saudi Arabia. oil war launched against Russia. At the time, 1.5 million barrels / day of cartel production cuts would have been enough, but the Russians rejected it, as a result of which OPEC + flooded the already weakened oil market on the demand side from the April 1st.
Russia has been content with a number of much more expensive producer countries, including the United States, which have plummeted prices kept high by OPEC + without contributing to production cuts, resulting in a gradual decline in OPEC’s share. + in the oil market over the years.
After that coronavirus has become a global pandemic and an unprecedented decline in global oil demand as a result of quarantines, resulting in a huge supply surplus and then at the WTI physical delivery point storage capacity is exhausted and subscription was as high as $ -40 on Monday April 20, So sellers paid buyers just to get rid of their crude oil. Currently trading WTI for $ 18.2 and Brent for $ 25.9.
What will be enough?
We can be very skeptical about the current OPEC + agreement and the G20, Saudi Arabia will produce only 1.2 million barrels per day less than it was before the outbreak of the oil war, Mexico will receive special treatment and will only have to cut 100,000 barrels, while the US cuts will only be an estimate, which is decreasing number of new wells. Overall, the 9.7 million cut is only 4.3 million barrels / day compared to the OPEC + production level in the first quarter of this year. In contrast, analysts estimate that the decrease in demand will be 20-30 million barrels / day in the second quarter of this year.
However, individual nations have made an important deal regarding oil production, however the success of stabilizing oil prices in the long term may depend much more on the recovery on the demand side, that is, when the economy can restart and when the quarantine can end. There has been good news in the past few days, as many European countries and some states within the United States have already published plans to restart their economies.
After the end of the oil war, the market could increasingly resort to lifting measures against the coronavirus epidemic, and if the economy relaunches relatively quickly, the oil market could breathe, but negative oil prices could emerge and the number of corporate bankruptcies in the US oil shale sector. USA It could also increase dramatically.
The latest US inventory data USA They have generated optimism that the imbalance in the US oil market. USA It may not be as big as analysts thought. Inventory data released yesterday by the US Energy Agency. USA (EIA) painted a more positive image than expected, with US oil inventories. USA Up to 9 million barrels last week instead of the expected 10.6 million barrels, carrying US inventories. USA At 527.6 million barrels. In addition, the United States’ gasoline reserves fell by 3.7 million barrels, which means that the growth in demand outpaced the growth in refinery activity.
One thing is for sure, it is extremely risky to bet on the price of oil now, because the world’s storage facilities are so close to capacity, not to mention the Cushing storage facility at the WTI physical delivery point, that negative oil market prices could easily reoccur. On the other hand, the current low oil prices are unsustainable in the long term. they do not serve the interests of any of the oil powers and, on the other hand, the necessary investments in the oil market may be lost and even the production fields may be closed significantly, which could be avenged in the future in the form of higher prices than Petroleum, when demand returns to pre-crisis levels.
Cover image: Wally McNamee / CORBIS / Corbis via Getty Images
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