OPEC Deal Collapse Sparks Price War: ‘$20 Oil In 2020 Is Coming’

Related stories

Oba Otudeko: EFCC Drops ₦12.3 Billion Fraud Case After FirstHoldco Shares Sale

By Abiola Olawale The Economic and Financial Crimes Commission (EFCC)...

Super Falcons dethrone South Africa, romp into WAFCON final in Morocco

The Super Falcons of Nigeria booked their place in...

Big Oil’s Power Couple Heads to Guyana

Following the completion of Chevron’s acquisition of Hess Corporation,...

Experts are calling dramatically lower crude prices as major OPEC and non-OPEC producers prepare for an all-out price war, in a sudden U-turn from previous attempts to support the oil market as the new coronavirus hammers global demand.

″$20 oil in 2020 is coming,” Ali Khedery, formerly Exxon’s senior Middle East advisor and now CEO of U.S.-based strategy firm Dragoman Ventures, wrote Sunday on Twitter. “Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc – may prove existential 1-2 punch when paired with COVID19.”

The comment came as oil prices are down 30% for the year and a day after Saudi Arabia announced massive discounts to its official selling prices for April. Plunging price forecasts are also coming amid reports of a possible increase in production by the OPEC kingpin from its current 9.7 million barrels per day (bpd) to more than 10 million bpd.opec

$20 oil in 2020 is coming. Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc – may prove existential 1-2 punch when paired with COVID19. https://twitter.com/javierblas/status/1236430793838342144 

Javier Blas

@JavierBlas

BREAKINGSaudi Arabia is launching the oil market equivalent of a declaration of war: plan for a big production hike, and offering huge discount for its crude | #OOTT #OPEC #SaudiArabia with @A_DiPaola17 https://bloomberg.com/news/articles/2020-03-07/saudis-plan-big-oil-output-hike-beginning-all-out-price-war?sref=5F8Ao01j 

With previously agreed OPEC+ production cuts expiring at the end of March, Saudi Arabia can theoretically pump as much as it wants — up to its capacity of 12.5 million bpd. And Russian Energy Minister Alexander Novak said Friday that essentially the wheels come off next month: “As from 1 April we are starting to work without minding the quotas or reductions which were in place earlier,” he told reporters at the OPEC+ meeting in Vienna, adding, “but this does not mean that each country would not monitor and analyze market developments.”

“Members look now to be preparing for a price war by announcing plans to actually increase output,” wrote Edward Bell, commodities analyst at Emirates NBD, in an analyst note Sunday. “The outcome is an astonishing reversal of what appeared to be a pending production cut to compensate for the decline in demand caused by the Covid19 (coronavirus) outbreak.”

International and U.S. oil benchmarks plummeted to multiyear lows on Friday, with Brent crude closing at $45.27, down more than 9%, while U.S. West Texas Intermediate sank more than 10% lower to $41.28, its lowest level since 2016.

Oil producers shifting to a market share race?

Saudi Arabia’s and Russia’s strategies reveal a shift to prioritizing market share rather than market stabilization and price support. Current production levels in the Middle East and North Africa are about 2 million bpd less than their peak levels since 2018 — which means there’s plenty of room to run if producers decide to open up the taps.

“Should OPEC+ members choose to raise output from Q2 onward, a wave of oil will be unleashed onto markets,” Bell wrote. “We expect to see Saudi Arabia, the UAE and other large producers in OPEC increase production over the rest of 2020 as they return to a market-share strategy rather than price targeting.”

Russia, meanwhile, is pumping some 130,000 bpd below peak levels “and the country appears to be explicitly implementing a market-share strategy,” Bell added.

Inventories will consequentially surge, and as OPEC+ pursues this market share fight, commodities analysts like Bell expect market balances to stay stuck in surplus for at least the first three quarters of 2020.

A supply flood and inventory surge

The impending flood of supply, overwhelmed inventories and coronavirus-led demand shock to a commodity that was already seen as relatively depressed in terms of pricing will inevitably slam those prices further — the question only remains as to how much.

Not everyone shares Khedery’s $20 per barrel oil forecast. Goldman Sachs predicted a bottom-out price of $35 per barrel in the event of a price war, or a fall to $40 before a second-quarter average of $42 if nothing changes.

Emirates NBD forecasts Brent prices to average $45 per barrel and WTI at $40 “with troughs in Q2 before a tentative recovery over the rest of the year.”

Correction: Ali Khedery is CEO of U.S.-based strategy firm Dragoman Ventures. An earlier version misstated the country.

 

Culled from CNBC

Hamilton Nwosa
Hamilton Nwosa
Hamilton Nwosa is an experienced, and committed communication, business, administrative, data and research specialist . His deep knowledge of the intersection between communication, business, data, and journalism are quite profound. His passion for professional excellence remains the guiding principle of his work, and in the course of his career spanning sectors such as administration, tourism, business management, communication and journalism, Hamilton has won key awards. He is a delightful writer, researcher and data analyst. He loves team-work, problem-solving, organizational management, communication strategy, and enjoys travelling. He can be reached at: hamilton_68@yahoo.com

Subscribe

- Never miss a story with notifications

- Gain full access to our premium content

- Browse free from up to 5 devices at once

Latest stories

NDN
Latest News
Oba Otudeko: EFCC Drops ₦12.3 Billion Fraud Case After FirstHoldco Shares SaleReconsider Travel to Nigeria, Somalia, Libya, Chad, DRC, 7 Others, US Tells Citizens in Latest Travel AdvisoryDrama as Trump Accuses Obama, Biden, Others of Alleged Treason, Vows To Go After themSuper Falcons dethrone South Africa, romp into WAFCON final in MoroccoBig Oil’s Power Couple Heads to GuyanaThe U.S. Has Only The 10th Most Powerful Passport: Here’s What That Means2027: PDP Eyeing Jonathan, Others for Presidential Race, Party Official Reveals$24 Billion Loan: Senate Approves Tinubu's Request, Loan StrategyAlleged N80.2bn Fraud: Court Throws Out Yahaya Bello's Travel Request[VIDEO] Natasha vs Akpabio: Tension as Natasha Denied Access To National Assembly Complex2027: Drama as Davido's Uncle, Gov Adeleke, Osun PDP Endorse TinubuDetails as NNPC Remits N6.69 trn to Federation Account in First Half of 2025Just In! CBN Retains Interest Rate at 27.5% for Third Time in 2025Datti Baba-Ahmed Attends Abure-Led Labour Party NEC Meeting, Vows to Reunite Obi, Otti, OthersJust In! Nigeria’s Economy Surges with 3.13% Growth in Q1 2025, NBS Reports
X whatsapp