On Monday, crude oil was trading below $ 20 per barrel. Traders assume that oil production may stop, as demand for it, in connection with the coronavirus, declined significantly.
The oil industry is currently facing the biggest drop in oil demand in history, and analysts, as well as traders, believe that the price of oil will continue to decline in the near future.
There are also speculations that in April, oil surplus may reach 25 million barrels.
Jason Bordoff, founding director of the Center on Global Energy Policy and former energy adviser to the Obama administration, said that this historic collapse is not over yet because soon, we will see numerous closures in oil production, as producers are likely to be forced to stop production on an unprecedented scale in the modern oil industry.
With higher costs to producers such as US shale and Canadian oil sands, the current prices are disadvantageous, so naturally, these companies will very much hope that other smaller producers will stop their production first. In addition, according to Baker Hughes, the rapid decline of oil has already led to the reduction of drilling rigs in the US last week. Analysts said that the US oil industry will most likely shrink to 2.5 million barrels per day by the end of 2021, despite the fact that US has greatly expanded this industry in recent years. Other high-cost production, from the North sea to fields in Asia, are also under pressure. The largest oil companies, of course, are cutting capital expenditures or studying plans to reduce them.
Meanwhile, Mathios Rigas,CEO of Energean Oil & Gas, said that weaker companies will go bankrupt. "We will see a big drag on investment decisions," Rigas said. "We are in a different world, but there will be survivors," he continued, adding that some companies will see investment opportunities while others will go bankrupt.
US has put little pressure on Saudi Arabia to reduce oil production, as the drop in demand gave a much greater impact on the price.
Bjornar Tonhaugen, head of oil markets in Rystad Energy, said that the decline in oil demand is the main factor why the price of oil dropped. According to him, it outweighs the increase in supply "by 4-5 times,". "Supply chains in the oil market is broken because of the incredibly large losses," Tonhauser said. According to him, refineries are reducing the processing of crude oil into fuel, and oil companies may begin to close production wells.
Meanwhile, yesterday, Trump and Putin had a telephone conversation, discussing about the spread of the coronavirus around the world. They agreed to consult with energy departments, in order to stabilize oil prices. After that, WTI oil jumped by 7%, while Brent increased by 3.6%.
