Coronavirus pandemic reduced fuel consumption. Saudi Arabia keeps being in a price war with its competitors in line with threatens and keeps increasing production to full capacity. The oil industry suffers in March with simultaneous demand and supply shock.
Demand and the collapse of energy diplomacy between Saudi Arabia, Russia and others have seen unprecedented reactions from governments and investors.
International crude oil prices have lost about 45% this month, and have fallen below the cost of most of the world’s production, causing energy companies worldwide to lose tens of billions of dollars.
Saudi Arabia has reduced its export prices and announced that it will pump a record 12.3 million barrels a day. He said he would pour an oil into a less needed market. He prepared a naval fleet for export and targeted refineries that bought Russian and US crude oil by eliminating profit margins in US exports. The Kingdom, which has been playing the central role of the industry for years, has entered into a shocking decision and practice. An actor who has been the actual leader of the Organization of the Petroleum Exporting Countries (OPEC) who has established market balances for decades, has used the natural resources as a threat that his geographical position served up.
Texas producers in the largest US state asked regulators to intervene to cut production. Unfamiliar with such controversial ideas, Texas made a similar intervention for the last time in 1973. Texas is said to possibly consider a coordinated production cut of 10%.
Meanwhile, U.S. shale producers have not dared to consider co-ordinated cuts for fear of violating U.S. antitrust laws for now.
Three of the toughest drops in Brent crude oil occurred in the past two weeks. Brent fell 24% on March 9, Brent fell 11% on March 16, Brent fell 13% on March 18.
On March 23, the US gasoline market fell the most in one day. Futures depreciated by 32%.
Jet fuel deteriorates rapidly during storage and cannot be used. Demand fell rapidly around the world, with travel restrictions and curfews due to the coronavirus effect.
Refineries’ buying nowadays crude oil to produce gasoline means losing money. Gasoline typically drives the energy complex as most crude oil aims to refine fuel for vehicles. Margin dropped to its lowest level since 2008 on Monday, dropping $ 1.11 per barrel.
Italy is one of the countries worst affected by the coronavirus outbreak, shutting down gas stations. The operators say the country’s highways started to shut down as of March 25, because it is impossible to guarantee health safety standards and continue operations.
Russia is pleased to see the US rock gas industry damaged as a threat. He dreams of leaving the shale from the market. Actually, this is of course a paradox. Currently, shale is a costly oil. When prices go up, it will surely come back to the agenda.
Refineries prefer to stay offline with all kinds of excuses because of the high cost of manufactured products, or they cut production due to lack of demand. The advanced logic is the less damage undertaken is better.