Oil prices have been falling sharply since the beginning of January. At that time, the most important international landmark, the North Sea variety Brent, was still $ 67 per barrel (barrel; 159 liters). The price has been under $ 60 since the last week of January, and 159 liters of Brent have cost less than $ 50 since the beginning of March. But the low point was far from being reached. Brent is now trading at less than $ 30. It was $ 29.48 on Thursday morning, while the WTI (West Texas Intermediate) orientation for North America was $ 23.27. The prices expressed a very slight recovery from the previous day, mainly due to the announcement by the US government of a $ 2 trillion ($ 2 billion) support package.
The cheapening had accelerated with the refusal of Russia to participate in a further cut in oil production by the OPEC (Organization of Petroleum Exporting Countries, dominated by Saudi Arabia). On March 5, the cartel proposed firstly to extend the previously agreed cut in production by two million barrels per day (bpd) by the end of the year and secondly to make an additional cut by 1.5 million bpd. This measure should initially apply until June 30 and then its effectiveness should be checked. OPEC was to account for two thirds of this reduction in subsidies, mainly in Saudi Arabia, the rest in Russia.
Moscow rejected this proposal on the grounds that it was satisfied with the current oil price at the time, which was $ 48 at the time, and that only the US oil companies had benefited from the previous restrictions on production by OPEC and its partners. As a result, the Saudi government announced an enormous increase in its funding. The state-owned company Aramco announced in mid-March that it plans to increase its production to 12.3 million bpd from the beginning of April. This should initially be done by reducing the large stocks. Later, the maximum capacity will be increased from twelve to 13 million barrels a day. Management officials said Aramco could easily get around at $ 30. In contrast, international experts have long assumed that Saudi Arabia needs an oil price of $ 60 in order to be able to draw up a reasonably balanced state budget.
The forecasts for the oil production in the USA, especially for the engine of its rapid growth in recent years, are clearly negative, the fracking process. With currently just over 13 million barrels a day, the United States has been the world’s largest oil producer since 2018. Due to the coincidence of the corona virus pandemic with a recession that started last year, US production is expected to decrease by one to two million barrels per day in the foreseeable future.
The forecasts assume that half of the often heavily indebted producers of so-called shale oil (shale oil), which is pressed capital-intensive from rock strata, may go bankrupt in the coming months. It is only unclear whether the companies would need a WTI price of $ 35 or $ 45 per barrel in order to promote without major losses and also to be able to pay dividends to shareholders. Many companies have now implemented extensive cutbacks and closed down drilling sites. Not only are the banks damaged, whose loans can no longer be serviced, but even more so the manufacturers, sellers and distributors of the required equipment.
While US President Donald Trump called on the Saudis four years ago to produce more oil to bring prices down, the US government is now pushing its “strategic partners” in Riyadh to end the “price war” and resume production shutdown.