Oil, which is composed of the words “petra” which means stone in Latin and “oleum” which means oil (Petra oleum = petroleum), is a natural combustible mineral oil, which is made up of hydrocarbons, is densed consistency than water, dark colored, unrefined, has its own specific odor and is taken out from the ground by drilling.
Hundreds of millions of years ago, animal and plant remains that lived in the seas or dragged by the waters interacted under the necessary conditions and became crude oil. Therefore, the crude oil of any site does not exactly match the crude oil of another field; surely there are more or less differences. This situation is often seen even in the same oil field.
The Venezuelan politician Juan Pablo Pérez, the founder of OPEC, described oil as the scum of the devil because of its negative effects on nature and world politics and predicted that it will cause the destruction of humanity in the future.
This valuable natural resource, owned by oil producing countries in terms of its geographical location, has been used as a strategic economic pressure and superiority instrument since ancient times.
A pandemic that was not on the account broke all the balances. While the leading oil producer countries, which were in the war of superiority in 2019, were in a fierce competition, the pandemic destroyed the value of crude oil. It was as if the owner of all being wanted to let people know who the boss was.
And again, these countries decided to cooperate to increase the value of oil. However, it is not easy to predict who will be the winners of the new balance considering the previous beneficiaries. Currently, as low prices to the detriment of a large segment in the oil drilling industry increase, leaders will again struggle for supremacy and fight for maximum benefit.
Shale gas, which made the USA the leader of the crude oil market, had a major commercial accident. West Texas Intermediate (WTI) has seen minus forties with a historical value loss.
COVIT-19 started in the city of Wuhan and turned into a pandemic after it was not taken under control, and with the precautionary practices taken, the businesses were closed and billions of people stayed at home, while the demand for oil used in transportation and industry dropped around 30% worldwide. The resulting abundance of supply pushed US crude oil prices far below its production costs, causing companies start their liquidation activities. Manufacturers first stopped high-cost drilling plants, which were also the ones that were likely to remain closed for the longest time.
It gave traders the idea of storing the costly shale oil, which exceeds the market value, to sell when the day comes and make it profitable. Limited storage possibilities filled faster than expected. Crude oil prices continued to decline with worldwide energy demand collapse, over supply, and economic recession caused by coronavirus. Although the discourses and actions of oil producing countries caused limited recovery, they reached a historical bottom point. In addition, transportation costs caused by the distance from refineries and consumption centers increased the cost of the product. During the week of April 19-24, LCOc1 oil prices fell to their lowest level in twenty years with the increase in market supply. West Texas Intermediate (WTI) took an unprecedented dive into the negative zone, so producers having no space for storage had to hand the product over to the people who had the opportunity by paying.
Spread to the east of North Dakota and Montana, the cost of oil producers in Bakken is $ 46.54 per barrel. This is well above $ 40 in the Permian basin, the largest shale gas area in the USA.
Authorities realized that they should consider closing the remaining 20 percent of the production currently operating in the Bakken shale gas region. North Dakota, which ranks second in oil production among US states, has been hit hard. Approximately 60,000 bpd drilling was stopped in the state late April. The drilling amount has decreased by at least 400,000 bpd since March 1, about a third of the state’s 1.4 million bpd production before the crisis. Government officials expect the volume decrease to increase further.
Independent producers in many states are forcing regulators to declare their production “economic waste”. This decision allows producers to close the wells without violating rental agreements.
With the 295,000 bpd reported three days ago, the total production cut is said to have reached 405,000 bpd as of April 24. Producers closed 6,200 out of 16,000 wells in the same period.