Crude oil prices dropped further on Wednesday, with United States’ West Texas Intermediate (WTI) prices falling to an 18-year low of $22 as global market expects an extra oil of about 3 million barrels per day in April, with even more pending in May.
WTI plunged 15.3 percent to $22.90 a barrel on March 18, the lowest level since 2002, while Brent crude was down 8.9 percent, at $26.17 a barrel, after falling earlier to $28.40, the lowest since early 2016.
“While Organisation of Petroleum Exporting Countries’ (OPEC) leadership retains hope that the price collapse will be a catalyst for a reconciliation between the two oil heavyweights, President Putin may not quickly capitulate,” Helima Croft, head of global commodities strategy at RBC, tweeted.
The coronavirus crisis is weighing on prospects for demand as people refrain from flying or driving amid lockdowns and border closures.
The world’s global demand has also seen a steep decline on flight cancellations, industrial shutdowns, quarantines and travel bans, a development which has further reduced the need for oil consumption by many more millions of bpd, widening the imbalance that already existed before the OPEC+ meeting.
A new report by Rystad Energy, a Norway-based independent energy research and business intelligence company, has revealed extra oil coming into the global market from April will be as much as 3 million barrels per day (bpd) if a cease-fire is agreed upon in Libya and the country reaches pre-shut-in levels.
Libya’s daily oil production has dropped from more than 2.8 million barrels to less than 100,000 barrels, due to the closure of oil ports and fields by tribal leaders in eastern Libya in protest against the UN-backed government.
“Any large political power sometimes needs to remind its adversaries and competitors of its might. We believe Saudi Arabia seeks to teach the market a lesson,” says Bjørnar Tonhaugen, Rystad Energy’s head of oil markets.
Tribal leaders in eastern Libya in January closed oil ports and fields, accusing the UN-backed government of using oil revenues to support armed groups against the eastern-based army.
There is a risk of production shut-ins as the world’s oil storage capabilities will be put to the test, with oil’s spot price subsequently collapsing, Tonhaugen said, “in which case countries with higher break-even prices will be the first to be affected”.
Breaking down the additional oil production capability of the OPEC+ countries, Rystad Energy believes Saudi Arabia will be the producer that plans to add the most, reaching total supply capabilities of 12.3 million bpd.
“We believe their upstream crude production capacity, without any additional drilling, is limited to around 11.5 million bpd in the short term,” Rystad Energy said.
Russia has followed competitive suit by ramping up its own production, with Energy Minister Alexander Novak saying last week the country had the capacity to ramp production by 500,000 bpd.
“We expect that Russia can increase production by at least 300,000 bpd in the next 90 days, but for now we include a more conservative increase of about 200,000 bpd in our estimates,” Rystad Energy’s report said.
Another country expected to increase supply in the coming weeks is United Arab Emirates (UAE). The country is expected to increase production by about 200,000 bpd to 3.20 million bpd in April from February’s 3.04 million bpd, mostly from its flagship Murban onshore field.
“A 110,000-bpd increase is also expected from Kuwait in April, raising its total production to 2.80 million bpd, with less upside risk than for UAE, Russia and Saudi Arabia,” Rystard Energy said.
The last major country with ample available spare capacity to potentially bring to the market in April is Iraq.
“Iraq will ramp up production by 250,000 bpd to nearly 4.9 million bpd in April. If Iraq finds buyers for this additional crude, its total spare capacity of 480,000 bpd could be back online by June,” it said.
The oil war is also wreaking havoc on the US shale oil industry. Most shale oil producers have a production breakeven point in the mid $30s to mid $40s per barrel, depending on the region and type of shale they use.
Many independent and smaller to mid-sized shale producers were already having balance sheet problems before the war and were being called on by frustrated investors to cut costs, offer or secure dividends and stabilise their finances.
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