OPEC Infighting and Coronavirus Adds Up to Affordable Gas
With the coronavirus keeping people indoors and shale drilling keeping U.S. oil prices relatively stable, you’ve probably noticed gasoline bills being quite reasonable of late. Well, don’t get used to the sums you’re paying now, as analysts project fuel prices will drop even lower as 2020 progresses. While you might think this is due to national quarantines and lessened demand, you’d only be half right.
Last week, the Organization of the Petroleum Exporting Countries (OPEC) failed to strike a deal that would have enacted production cuts to better stabilize the market. Instead of slashing output, Saudi Arabia started slashing prices as it sought ways to ramp up production. Russia immediately responded by promising to increase its own output, leading to what looks like an all-out price war.
On Monday, oil prices dropped nearly 25 percent — knocking off about 10 bucks per barrel and leaving the per-barrel price hovering around $31. It was the largest single-day decline for U.S. West Texas Intermediate crude and Brent crude since 1991. While Tuesday morning saw a meaningful bump in prices as portions of the market came to its senses, OPEC members don’t seem to be on better terms.
According to Reuters, Saudi Arabia plans to supply 12.3 million barrels per day in April — a massive increase over its current production level of 9.7 million barrels per day. Russian oil minister Alexander Novak initially said he would not rule out joint measures with OPEC to stabilize the market, adding that the next OPEC+ meeting was planned for May-June. His tone changed slightly on Tuesday, however, with suggestions that the nation could raise its oil production by up to 300,000 barrels per day in the short term — something a few market analysts have claimed was its plan all along.
It’s probably not the best time for OPEC to try and tear itself apart (though that hasn’t stopped it in the past). China, the world’s largest oil importer, is currently hamstrung by the coronavirus. Other regions may follow shortly. Saudi Arabia seems to be attempting to grab market share but with demand so low, it’s a real gamble. Russia and U.S. shale producers are in a better position to weather the storm. Meanwhile, analysts are concerned the Arabian kingdom couldn’t possibly sustain the price cuts and increased output for any significant length of time without hurting itself.
While this could have long-term implications for the oil industry, it’s also likely to drive down gas prices though the spring. National averages (in the U.S.) are around $2.38 per gallon and dropping during a period where prices normally ramp up to meet higher summer demand. Patrick DeHaan, head of petroleum analysis at GasBuddy, expects per-gallon prices to fall below the two-dollar threshold by April if trends persist.
The International Energy Agency (IEA) is likewise concerned that the coronavirus could recreate what happened in 2016 when we had our last major global oil surplus. Bad for the world economy, but fantastic for your back account, as gas prices were similarly low back then. Of course, there are heaps of uncertainty in the market with varying assumptions as to how bad the pandemic will actually get. Many see it as a minor hurdle that will primarily impact China while others are convinced it will be much worse than anticipated. Most are simply shrugging their shoulders as they watch the market.
“The situation remains fluid, creating an extraordinary degree of uncertainty over what the full global impact of the virus will be,” the IEA reported this week. “In the IEA’s central base case, demand this year drops for the first time since 2009 because of the deep contraction in oil consumption in China, and major disruptions to global travel and trade.”
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- Art Vandelay 2025 Camaro and Challenger
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No on anymore ethanol subsidies. Just what we need increase ethanol content and ruin the engines in our vehicles.