Even after the OPEC agreed to cut oil production, the oil prices are falling due to the impact of Covid-19 impact. The production cuts agreed upon by OPEC countries will be about a tenth of global oil production.
The COVID-19 pandemic has led to very low demand and producers are running out of places to store all their excess barrels of crude, resulting in the collapse of the oil market.
US oil prices, saw a spectacular collapse and fell below $0 to $-37.63 a barrel on April 20 on New York Mercantile Exchange (NYMEX). That's the lowest level since NYMEX opened oil futures trading in 1983. The negative price recorded was a short-term anomaly, according to analysts with S&P Global Platts, a commodities analysis firm.
Saudi Arabia said that if the situation doesn’t improve, they are ready to cut oil production in the future as well.
Due to the Corona pandemic, oil prices have fallen as much as 64% in 2020. The Covid-19 pandemic has led to the steep fall in demand for oil across the globe. The entire world is flooded with oil, as there is virtually no movement of vehicles and flights. Most of the industries are also not operational amid the Corona pandemic. As a result, all the storage capacity of most of the nations is almost full.
It all started amid Covid-19 pandemic on March 6, when Russia surprised the world by launching an oil price war with Saudi Arabia. The oil-producing countries to contain the oil price wanted to reduce oil production, but Russia refused to cut its oil production of 11.3 million barrels per day (bpd).
Organization of the Petroleum Exporting Countries Plus (OPEC+) wanted to have an agreement on coordinated production cuts to stop oil prices from collapsing.
In retaliation to Russia’s refusal, Saudi Arabia and the United Arab Emirates announced a substantial increase in oil production.
The price war led to a massive and immediate market effect. As the oil production went up and demand declined sharply, the prices fell much more than the Russians had anticipated. The Brent oil plummeted to $20 per barrel, and the Russian Urals standard touched below $11 per barrel.
Russia saw some backlash because of the increased production of oil and less market demand. The officials of Lukoil, which is Russia’s largest private oil company producing 1.8 million bpd warned the government that it would have to cut oil production by half.
There were other challenges as well and consequently in just less than a month, Russia had to give up. The country accepted twice as big cuts of about 2 million bpd.
The oil price war started by Russia against Saudi Arabia, and the United States backfired. President Putin soon realized that the Russian economy is much weaker than he thought.
The Coronavirus outbreak curve should come under control before we see an increase in oil demand. The prices may remain stable till the time the Coronavirus outbreak reaches its peak.
The COVID-19 pandemic has led to very low demand and producers are running out of places to store all their excess barrels of crude, resulting in the collapse of the oil market.
US oil prices, saw a spectacular collapse and fell below $0 to $-37.63 a barrel on April 20 on New York Mercantile Exchange (NYMEX). That's the lowest level since NYMEX opened oil futures trading in 1983. The negative price recorded was a short-term anomaly, according to analysts with S&P Global Platts, a commodities analysis firm.
Saudi Arabia said that if the situation doesn’t improve, they are ready to cut oil production in the future as well.
Due to the Corona pandemic, oil prices have fallen as much as 64% in 2020. The Covid-19 pandemic has led to the steep fall in demand for oil across the globe. The entire world is flooded with oil, as there is virtually no movement of vehicles and flights. Most of the industries are also not operational amid the Corona pandemic. As a result, all the storage capacity of most of the nations is almost full.
Oil Price War
The reason why we are witnessing such a free fall of the oil prices is the oil price cut war between the oil-producing countries in the world.It all started amid Covid-19 pandemic on March 6, when Russia surprised the world by launching an oil price war with Saudi Arabia. The oil-producing countries to contain the oil price wanted to reduce oil production, but Russia refused to cut its oil production of 11.3 million barrels per day (bpd).
Organization of the Petroleum Exporting Countries Plus (OPEC+) wanted to have an agreement on coordinated production cuts to stop oil prices from collapsing.
In retaliation to Russia’s refusal, Saudi Arabia and the United Arab Emirates announced a substantial increase in oil production.
The price war led to a massive and immediate market effect. As the oil production went up and demand declined sharply, the prices fell much more than the Russians had anticipated. The Brent oil plummeted to $20 per barrel, and the Russian Urals standard touched below $11 per barrel.
Russia saw some backlash because of the increased production of oil and less market demand. The officials of Lukoil, which is Russia’s largest private oil company producing 1.8 million bpd warned the government that it would have to cut oil production by half.
There were other challenges as well and consequently in just less than a month, Russia had to give up. The country accepted twice as big cuts of about 2 million bpd.
The oil price war started by Russia against Saudi Arabia, and the United States backfired. President Putin soon realized that the Russian economy is much weaker than he thought.
Oil Price Prediction
Finally, the OPEC+ countries agreed to cut oil production. The oil-producing countries after the agreement are going to reduce production by as much as 19.5 million barrels per day. However, the nations will implement these cuts slowly and, in some cases, it may not start for weeks.The Coronavirus outbreak curve should come under control before we see an increase in oil demand. The prices may remain stable till the time the Coronavirus outbreak reaches its peak.
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