Short answer, we are witnessing the collapse of the oil market. Many believe that the cause is the collapse of OPEC+ that caused the war between the leading manufacturers. One widely accepted version literally to death, chopped, Russia and Saudi Arabia, and the return goes to hurt US, trying to stand above the fray.
On the other — implemented a cunning plan to collapse the us shale production. Third, the American deep state, by the hands of the Saudis trying to crush the Russian economy. Fourth, insidiously a stroke of genius, the Kingdom was going to move both Moscow and Washington, with the aim of regaining control over the market, but something went wrong.
But the worst moment came COVID-19, strongly sutassi all cards. And also, what if he accidentally, or not without the wiles of the clandestine world government for the sake of getting rid of extra mouths to feed the world’s population and to restart the global cycle pozostava capitalist economy.
Version, as always, a lot, and they are all wrong, because denying it has long been obvious. The market collapsed solely due to loss of integrity. He just seemed to be a single mechanism, like the huge Swiss watches, only from oil. In fact, he already from the beginning of the 2010s has become a huge market, the real situation which really could’t represented by anyone.
A simple example. According to the Corporation British Petroleum, which for almost half a century is commonly referred to as the most reliable source of the General state of the market, the total consumption of oil in the world for 2015 amounted to 95 million barrels a day.
The largest consumers were the United States (19.3 million BD/day), the European Union (12.7 million) and China (11.9 million). They were followed by India (4,159 million), Japan (4.15 million) and Russia (3,89 million), in total amounting to almost another EU. In General, the first 67 countries accounted for 88.8 million br per day, more of 6.17 million get the rest of the 131 state of the planet.
At the same time, according to the same BP, the world has extracted all 88,4 million br per day, which, even taking into account the averaged transfer into barrels, implies about 7% of the deficit. According to economic theory the price per barrel were to grow rapidly, and consumption to fall.
However, what we see on the long term chart? Before the Shale gas revolution in the US 2014 it is about how it was, and then… broke. Sharply increasing American exports collapsed, the price of a barrel of, say, Brent with 111,87 dollars in June 2014 to 48,42 dollars in January 2015.
Over the next year revealed that the Cartel of the countries-manufacturers of oil covers only 34-37% of the market and influence its pricing is almost impossible. For two reasons.
First, most of the players, including members of OPEC, quietly allowed himself to indulge in different kinds of non-market transactions. For example, Turkey is well traded Syrian oil fields seized illegal supply a different green-black barmaleem, according to various estimates, in the amount of up to 0.3−0.4 million barrels/day.
And there were different deals, savvy guys with Iranian oil. And even with Iraqi oil well defamed the USA. The volume of this list to pinpoint not state no, however, the number held by him of oil, experts estimate another 2.5−3 million barrels/day.
Second, and equally important, the plans of the producing countries was based on very rounded and rather approximate data published by “reputable sources”. The same Saudi Arabia consistently one of the three largest producing countries, over the last ten years, the report cited the unchanging volume of its reserves.
Although no serious exploration has not led, and the opening of new major fields announced. But her figures are “the market” quietly took for granted. After all, the leader of OPEC, after all, he can not lie, and even so brazenly and publicly! “Then, — was said in a similar situation, Vasily Ivanovich Petka, card I and flooded!”.
Or the figures on total world consumption. The crisis of 2008-2009 collapse of global trade 10% of world production — by 7%, and cost the world GDP is more than 2.5% of the total volume. According to market theory, the reduction of sales was to significantly reduce the energy demand.
And it kinda happened. Oil fell from a total of 133.9 per barrel in July 2008 to us $ 41,58 in December, but I started again a steady growth like the market felt its serious deficit. In April 2010, she again was worth 84,93 dollar per barrel.
Why? Because as of this moment pricing has finally lost touch with reality and moved to expectations based on the predictions of the scale of global economic growth. Except that now defined his expectations for the increase of economy of China, India, other BRICS countries, and a little bit of Africa, is also gradually included in the growth forecasts of the global GDP.
But this time “the castle of the chief,” that is, in the officially published “respected people” statistical tables, the gap between total production and total consumption figure started to grow even more.
In some sources no one was deterred by the expectation of oil consumption in the world to 106.2 million br night claimed the actual total production of 74 million after the tightening of us sanctions against Iran, the exceptions, the result of the American occupation of fields of production in Syria, the degradation of production in Libya and lower production in Venezuela.
Yes, these introductory oil had to take off almost 200, but for some reason she continued to fall. Only slightly slowed down after OPEC+ in mid-2016. That is, the market has openly behaved like a classical financial pyramid in the final stage of existence. Externally, it is still huge, in public statements it continues to show growth and other positive figures, but the money really has run out and the case goes to the crash.
The epidemic of coronavirus in the beginning of 2020, only a little bit broke the pace of shifting misconception between different pockets. If a long time before the appearance of the good turnover has been able to maintain due to the difference in the closing time of the demand of some consumers and the emergence of others, now most of them disappeared at once, to ignore the disparity of numbers was physically impossible.
On the one hand, completely incomprehensible turns, the volume of supply. Production decreased in Venezuela (3% of the world supply in 2018), it almost completely stopped in Canada (4% of the world supply), twice reduced the export of Iran (from 7 to 4%).
It turned out, kasiraja production at 9.8 million barrels/day (supposedly 16% of world exports), in fact the CSA was producing 7.8 million barrels/day, of which 3.2 million were spent for internal needs. And the leading sources, such as Bloomberg, continue to write predictions, however, is negative, still starting from the previously called total production in 99-100 million barrels/day.
On the other hand, suddenly and greatly decreased the volume of demand. The exact numbers yet, and it will be not before mid-year. But the approximate scale of the disaster can be measured.
For the first quarter of 2020 China lost not less than 1.5% of GDP. And lose another due to the collapse of its two main markets — closed on quarantine of Europe and the choking epidemic in the United States. The volume of shipping to date has decreased by 10.2%, while air transport decreased by half.
So the demand for oil will subside. Roughly 1.5−2 million barrels/day. Now it is camouflaged by the extension of its successful procurement at low prices in stock, but to date, the reserves China has accumulated its 80-85 days and volume of storage are approaching exhaustion. Therefore, any price movement, especially upward, China is almost a quarter will fall out of the market, which will reduce the demand even stronger. Probably even up to 4 million barrels/day.
In Europe the demand for oil has slipped by 20%. Many factories stopped. Planes do not fly nearly. The cars do not go. And it is 65% in the total consumption of oil.
Plus a third civil fleet either just standing funny, as a tourist liners, or is in the ports awaiting unloading or loading, much slower or even stopped because of the epidemic, either as tankers are used as temporary storage of excess oil. The same Saudi Arabia under a deal involved over 22 tankers.
More difficult in understanding the situation in the United States. On the one hand, there remains a surplus of oil. It filled all available storage. The government in April allowed to use the free capacity of the state reserve. But on the other, there is also a quarantine, and various other restrictions on the meaning of the same European. According to American experts, the business activity in the US has dropped by 18% and by mid-may could fall to 25-30%.
Other countries, even very significantly affected directly by the epidemic, such as Poland, the Baltic States, Middle East, South and Central America, Mexico and the African continent, being essentially only the transmission links staying of the global economic mechanism, the demand for fuel cut too. Just not really understanding what value reduction will result in the end.
Therefore, in General, even if we accept anything like reliable figures BP for the consumption of 88 million barrels/day, the current actual level of demand can be safely taken for a 75-72 million At least until the passage of the peak of the epidemic in key regions and the beginning of recovery there continues to be economic activities.
What is not expected before June-July, if not August, and in the United States and even to spring of next year. It may happen that in the whole year, the daily figure drops even below 70 million barrels/day.
It is difficult to say whether such figures and predictions were in the hands of the Russian delegation at the last meeting of OPEC+, but personally I am more than confident that the overall trend occurring was understood even then.
The consent to continue the Agreement on the same terms had the character to delay the collapse of the market at least some time to get a little bit of money that you really need it, as you can see now, to combat the epidemic and arrest its negative effects on the economy.
However, faced with the apparent unwillingness of the Saudis “are together rowing in the same boat” and blatant U.S. effort to use the events only to its use, Russia has acted in accordance with the famous words of Vladimir Putin. If a fight is inevitable, be the first to strike. As is now obvious, even save OPEC+ unchanged, the oil market for the reasons mentioned above would have collapsed anyway. Not in the middle of March, and two weeks later.
As events go on, now depends on four factors: the pace of overcoming the acute phase of the epidemic, the scale of the collapse of the major oil-producing countries, the degree of preservation of system of long-term contracts and on the ability of manufacturers to take decisive coordinated production cuts, which they still are then at least fair enough to perform.
The first and third factors are related to each other directly. Expert Boris Martsinkevich rightly points out that the current pandemonium of quotations is connected exclusively with short-term stock trading small quantities of oil, based on rumours and the most prone to panic.
While approximately 70% of volumes supplied to major customers under long-term contracts from independent instantaneous volatility is weak. This stabilizes the market, but at the same time puts it in dependence on the scale of the economic consequences of quarantine of COVID-19.
If Europe, with our Chinese and Cuban help, will be able to overcome the crisis relatively quickly and, at least in the beginning of summer, asking the epidemic will begin to return to normal life, the base of production will maintain the performance, and hence demand for oil. Its volume will of course subside, but contract prices will suffer slightly. Yes, it will not be for 65 per barrel, but a return to the levels of 40-45 dollars per barrel for Brent, is likely likely.
If the epidemic in Europe will be delayed longer, the system of long-term contracts will be threatened because of the irrelevance of major oil buyers. Then, it is expected as further reductions in demand and compression rates to the levels of 35-36 per barrel Brent.
Of course, its effect on balance will have a shootout large manufacturers because of the financial and economic problems. Now this is not less vague factor than the timing of the victory over the coronavirus. Moreover, shale production in the United States there is a weak value.
The crisis only accelerates the procedure of market consolidation in the hands of the three largest American oil multinationals: Exxon Mobil, Chevron and Amoco. As the ruin of small and medium, like Whiting Petroleum, companies, industry utilizes the lion’s share of the accumulated debts (all of which had accumulated up to 800 billion dollars. direct and to 2.2 trillion syndicated), and thereby reduce the break-even level of production in the shale up to 30-35 dollars a barrel.
Another issue is that consolidation still involves a redemption of only the most suitable for the level of regions, whose number is estimated at 5-9% of the total. So since the winter of the total volume of oil shale production in the U.S. will inevitably begin to decline by about the same 4-6 million barrels/day, to which he has grown as a result of “shale revolution”.
Therefore, in the next 5-6 months will be determining the scale of the disposal of Canada (probably full), Brazil (partial), Kuwait (partial) and Iraq (yet uncertain). But first and foremost, the Saudis, in fact, outstanding to the market about 5 million barrels/day. Riyadh therefore changed the rhetoric with aggressive self to cry about the restoration of OPEC+ that he now has the worst.
They declared about the inevitability of the budget cuts the country is 20% at a price of $ 65. How it will have to cut back even at the current quotation of the Brent to 34.8 per dollar — it can only be assumed. But I think not much mistaken if, at least 30%.
And this at a time when over the past three years in the Kingdom were suppressed in three major coup attempts. Whether Riyadh in such circumstances, at least maintain the current level of production — the issue is more than interesting. And in light of the ongoing, expensive and unsuccessful war in Yemen — especially.
In this context, the US plans for a New middle East, when the CSA breaks up into several countries, which meets the interests of Russia — can be considered feasible.
It may seem strange, but the last factor is the willingness of the global producers to rebuild a new Cartel, that is to say, the enlarged — at this stage has the least value.
Though, because the final amount of the aggregate reductions in production will remain unclear for at least another three months. If not all five.
So far it looks like that sturgeon should be cut back from at least a third, and that for most producing countries are extremely painful and sometimes fatal. Well I do not want the same Saudis and other Gulf monarchies of gilded expensive sports cars to get on the camels and move to live in woolen tents.
And in the US, the Central government is banal does not have effective policy tools for reducing production volumes from a completely private market companies. Especially such monsters as Exxon Mobil or Chevron. And certainly not for 9 months before the presidential election in the United States. And without them, with whom and what is now possible to negotiate at all?
Then why did Russian President Vladimir Putin said recently about the need to reduce the production on all 10 barrels/day? Then, all processes first have to Mature, and doziveeme need at least rough to understand what to expect.
Objectively, of natural causes in the next three months the volume of export of oil from Russia, if will change, not much. The crisis also contributes to the expansion of exports to China, where Russian oil, along with the logistics, is more profitable middle East or the us.
Now we mainly lose just because of low price, and even then, not at all, but only beyond the amount of long-term contracts. It’s frustrating, especially in light of the growing scale of the epidemic in the country, but in the system sense for short distances bearable. And with the return of prices above $ 38-40 dollars position and will prove to be almost comfortable.
While the rest of the this period has the potential to be significantly worse than our 90s.
Especially in light of the initiative of the American oil industry to achieve the government introduce tough sanctions against Russia and Saudi Arabia (!) for the protection of the US oil industry. And in fact, in light of the specifics of the election time they could ride.
That even more clearly shows some “serious players” and most of the other participants in the obvious simple idea. If you do not gather together under the banner of someone strong enough for confrontation with America, then very soon you will start to look for a place in the cemetery.
But to pass the five stages of the inevitable takes time. Yet they barely reached the stage of bargaining. And then, by the end of summer, they will still be depressed. And in the autumn will begin the adoption of new rules that, in essence, is quite simple. The nearest relatively stable balance of supply and demand is around 70 or maybe even 60 million barrels per day. Even if the actual current offer is 99 million br per day, and less, say, about 90, you still need to throw the third.
Yes, a lot. And, Yes, it is not at all evenly. Due to the dominance in the sales structure the share of long-term contracts in this part of Russia will agree to reduce a little. But played in the market element the majority will have to pay more than others. But it’s still no options.
And even then, from the equilibrium level in order to exhaust the accumulated in the vaults of the excess inventory would take a long time to put on the counter of oil by approximately 10 million bbl/day short of demand. But this figure in the new Cartel will have to divide the equity at all.
And all this in order then, after restarting, market, oil has long been at 42-45, but not for 32-36 dollars per barrel.
It is clear that while for the most part has the character of assumptions and guesses. Even the scale of the actual cuts you can start to clearly assess before the release of the full statistics at least for the first quarter of 2020, which will not happen before the end of April to mid of may. And expect tangible results of the efforts to combat the epidemic before the end of may so all is naive. However, the overall picture currently looks that way.
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