An unsettling oil spring
The spring of 2020 for the global oil and gas industry has become truly dramatic, on par with, perhaps, the energy crisis of 1973. However, if almost half a century ago, as a result of the crisis, the price of oil rose throughout the year from 3 to 12 dollars per barrel, then in March-April of this year, for the first time in history, it, on the contrary, fell to negative values.
Between Russia and Saudi Arabia
It all started on March 6, when the Ministers of the Organization of the Petroleum Exporting Countries (OPEC) member countries and other countries that joined the agreement on limiting oil production failed to agree on an extension of the agreement that had been in force for the past three years, called OPEC+. Its term expired on the last day of March, and theoretically, starting from April 1, any of the OPEC+ member countries received the right to produce and release as much oil as they wanted to the world market.
The stumbling block that prevented the arrangement of an extension of the agreement was the disagreement of two key players – Saudi Arabia and Russia – on the issue of additional production restrictions, which would prevent prices from falling against the background of the coronavirus pandemic.
The consequences of the coronavirus for the energy market are estimated by OPEC analysts as catastrophic. The forecast for oil demand growth in 2020 has been lowered by the organization from 1.1 mln barrels per day to 0.48 mln barrels, meaning that the growth rate of consumption will slow by more than half due to a drop in the number of air travel, tourist flows, and restrictions on the mobility of people.
According to the consulting company Wood Mackenzie, global oil demand in the first quarter of this year will fall by 2.7 mln barrels per day. "And this is the biggest drop since the 2008 crisis," – the company's analysts point out.
In this situation, Saudi Arabia proposed at a meeting of the Ministerial Committee to its OPEC+ allies to extend the current agreement until the end of 2020, while reducing production quotas by an additional 1.5 mln barrels of oil per day. Of this amount, cartel members are ready to produce one million barrels less, provided that countries that are not members of OPEC but have committed themselves to OPEC+, including Russia, Kazakhstan, and Azerbaijan, will reduce production by half a million barrels in total.
Russia plumped for renewal but adamantly opposed the reduction of quotas on oil production for itself. Russian Energy Minister Alexander Novak, voicing this position, left the meeting with members of his delegation, without waiting for its completion.
In fact, the breakup of the OPEC+ deal caused a collapse in world oil prices. Thus, the price of a barrel of Brent, which was $49.99 on March 5, fell to $26.35 by March 31.