Oil pandemic

Oil pandemic

The global coronavirus pandemic has overshadowed the problem of oil market pricing. The price of raw materials is remembered only when the price of oil breaks the bottom once again, setting an anti-record, or also rises record-high at the games of exchange speculators.

This time, speculators significantly torn oil from the bottom in anticipation of the meeting of the OPEC + countries in Vienna on April 9 and the next conference of the G-20 countries. The price of Brent mixture at the close of trading on the eve of April 8 reached $ 33.64 per barrel, and the American WTI mixture - $ 26.14 / barrel. Analysts believe that after the failure of the OPEC + deal in early March and the ensuing collapse in oil prices, Russia and Saudi Arabia will be able to agree to reduce raw material production and complete the price confrontation.

Reasons for optimism are present. There are sensations that the parties made certain conclusions and are ready for flexible decisions. The underestimation of the threat of coronavirus influence on world economic processes in early March already turned into enormous expenses, exceeding the fight against other crises of the current century.

Russia may agree to reduce oil production by 1.5-1.6 million barrels per day (b / s) compared to the daily production in the first quarter of 2020. Saudi Arabia has not yet given an adequate answer and is awaiting the reaction of other market participants, primarily the United States. Arab producers, however, like Russian ones, expect that the United States, as one of the largest players in the oil market, cannot stay away from the deal and must also reduce its production capacities.

The Organization of Petroleum Exporting Countries, for its part, suggests that it will be able to overpower the reduction in oil production by 10 million bpd at once, despite the fact that in January, when the previous agreement of the OPEC + countries was in force, the total oil production in the world amounted to 100.12 million bps The largest player in OPEC Saudi Arabia in the same January accounted for 9.73 million b / s, and, for example, the United States stepped far ahead with an indicator above 13 million b / s. The average daily production in Russia was about 11.3 million bpd.

Cutting off production volumes by 12-15 million bpd at once can be an overwhelming task for some countries wishing to participate in the process for the benefit of rising prices, and no one has yet removed the existing contradictions in approaches to this issue between Russia, Saudi Arabia and the United States.

The Americans refuse specific obligations, believing that the departure from the market of shale oil producers in the United States, which amounted to about 600 thousand b / s in two weeks, is already enough for the first "contribution". If the “partners” continue to “push”, then the United States always has at hand a club of sanctions. The reading of the oil issue is about duties that Washington is prepared to impose on the flow of cheap oil from Russia and Saudi Arabia.

System destroyer

The coronavirus pandemic catastrophically reduced the demand for raw materials. At present, up to 25-30 million b / s are being thrown out on the market. The OPEC + deal under the most favorable scenarios does not equalize demand with supply and will only lead to a short-term, speculative increase in commodity prices.

The price of reference grades will rise for the most part on paper. The stock exchange mainly trades in futures, future contracts, fouling derivatives and other exchange growths. As for real transactions with specific physical volumes of oil, the situation is completely different.

In real terms, the Brent brand has ceased to be the benchmark for Europe after the failure of the OPEC + March 6 deal. The virus hit the oil market indication scale, and it broke and ceased to function. Applicable to our region, the situation looked something like this: if earlier all traders understood that at a Brent price of $ 50 / barrel. Russian Urals was trading at a discount of about $ 1.5-2 / bbl., Kazakhstan varieties were conditionally sold cheaper at $ 0.5-1 / bbl., the cost of Azerbaijani oil in Supsa and BTC mix in Ceyhan was trading above the Brent standard by $ 3-4 / bbl., sometimes reaching a premium of $ 6 / bbl, then in March, after the collapse of oil prices and a strong drop in demand, the cost of Brent was only an indicator of the "average temperature in the hospital."

Differentials of Kazakh varieties collapsed most of all to a discount of $ 8-9 / bbl to Brent. The cost of Azerbaijani oil on April 1 updated the 1999 anti-record, dropping to $ 16.53, while the Brent grade was trading at $ 22.7 / bbl. On March 31, the Russian Urals fell to $ 13 / bbl. –– the minimum level since March 1999.

In late March and early April, traders desperately tried to find benchmarks for pricing non-standard grades of oil. But even if it was possible to find price benchmarks, there were practically no deals themselves. Buyers didn’t even need oil at bargain prices; on the other hand, sellers tried to keep the goods in the hope of a further increase in its value.

World oil consumption has fallen to the levels of the 80s. Restrictions on the flight of aircraft on all continents, the movement of vehicles in many countries, led to the fact that oil producers began to fill it in all possible storage capacities - from tankers to cesspools. Refineries in many countries of the world, primarily in Europe, have reduced the volume of processing of raw materials due to lack of demand for fuel.

The panic situation was partially reassured by the news of recent days from China and other countries of Southeast Asia, where the coronavirus began to recede, and trading activity returned to its previous course. Demand for oil in this region has enabled sellers to redirect volumes unclaimed in Europe there. At the same time, the cost system is still damaged, and it can take more than one month to configure it.