It is enjoyable for non oil producer countries to see the historic low prices of oil but of course people are worried about its after effects and what waits us in the future.
Here is an analysis by Sam Meredith from cnbc.com
An oil price war between Saudi Arabia and Russia will most likely accumulate over the course of the year, energy analysts have told CNBC, with no end in sight until 2021 at the earliest.
International benchmark Brent crude traded at $26.01 Wednesday, down around 9%, while U.S. West Texas Intermediate (WTI) stood at $22.73, more than 15% lower.
Brent fell to its lowest level since September 26, 2003 on Wednesday, while WTI slumped to lows not seen since March 6, 2002.
It comes as the coronavirus continues to spread worldwide and amid an ongoing price war between OPEC kingpin Saudi Arabia and non-OPEC leader Russia.
Analysts at Eurasia Group believe the price war between Riyadh and Moscow is likely to last throughout 2020.
“The Gulf countries see Moscow as an important power that can play a broader security role in the region over the long term. The relationship between Mohammad bin Salman and President Vladimir Putin probably took a hit but the strategic imperatives have not changed,” analysts at the risk consultancy said in a research note.
“Extensive pain from the oil price shock will accumulate over the course of 2020 and create the necessary conditions for negotiations, compromise, and probably a new production restraint agreement,” they added.
“Saudi policy will now revolve around inflicting pain on other producers over the short term, but its long term objective is to be the predominant market manager and price setter,” analysts at Eurasia Group said.
How did we get here?
Earlier this week, Saudi Arabia’s state-owned oil giant Saudi Aramco said it would likely continue with a planned oil production hike from April into May, reportedly suggesting it was “very comfortable” with an oil price of $30 a barrel.
Aramco plans to increase its output to 12.3 million barrels per day (b/d) from April, with the United Arab Emirates also pledging to raise output from next month.
“The Saudis have a potent weapon at their disposal, namely spare production capacity,” Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note.
“As the long-time purveyor of global spare capacity, Saudi Arabia is reopening the oil spigots after having done most of the heavy lifting in curbing supply.”
“Put simply, the Saudis are in for the long haul,” Brennock said.
Russia, which refused to sign up to OPEC’s proposal of deeper production cuts earlier this month, has claimed it can withstand lower oil prices for as long as a decade.
Nonetheless, Timothy Ash, senior emerging markets strategist at Bluebay Asset Management, said in a research note that the timing of this price war was “really horrible” for Russia.
“Putin wants to deal now — why else would he risk the much improved relationship with Opec+ and the Saudis, and even his popularity at home going into the vote next month.”
“For Putin, I think it is now or never,” Ash said.
Oil surplus could ‘overwhelm’ global storage
Meanwhile, analysts at Bank of America warned Wednesday that an OPEC+ supply surge and crumbling oil demand had raised concerns about a surplus that could overwhelm global storage.
“In our base case, inventories would rise by an almost unprecedented 4 million b/d in (the second quarter), but this number could be as high as 10 million b/d in a severe surplus,” analysts at Bank of America said in a research note.
“In a severe scenario, if the market struggles to find a home for surplus barrels then oil prices might have to trade down into the teens in order to shut in oil production,” they added.