Which factors make scenario for oil prices below $20 likely?

Oil&Gas Materials 19 March 2020 13:03 (UTC +04:00)
Which factors make scenario for oil prices below $20 likely?

BAKU, Azerbaijan, March 19

By Leman Zeynalova – Trend:

There are several factors, which make the scenario for oil prices to fall below $20 per barrel likely,

Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris), told Trend.

About the $20/b scenario:

Some basic facts:

The price of North Sea Brent fell by about 60 percent from $67-68 per barrel on 6 January to a little less than $28/b at the end of this morning.

It is the lowest level since January 2016.

At the beginning of 2016 there was no coronavirus

The pandemy is expanding every day throughout the world.

It has a very strong negative impact on the world economy and on world oil consumption.

According to the International Energy Agency (IEA) world oil demand could be reduced by 2.5 million barrels per day in the first quarter of 2020.

The cooperation between OPEC (13 countries) and 10 non-OPEC countries is no longer operational.

And Saudi Arabia has just decided to push upwards its oil production from April.

“Due to all these elements the scenario of a $20/b oil price is possible and perhaps likely even if we do not have a crystal ball to forecast oil prices,” said Perrin.

Talking about the OPEC+ and its future, the expert said this format is not dead.

“This cooperation, lasted from the end of 2016 to 6 March 2020 with the failure of the OPEC/non-OPEC summit in Vienna. Strictly speaking OPEC+ is not dead. The Joint Technical Committee (JTC) and the Joint Ministerial Monitoring Committee (JMMC) are always alive. But this cooperation implies a good relationship between the two pillars of OPEC+, Russia and Saudi Arabia. In order to rebuild an effective cooperation within OPEC+ these two countries must discuss and negotiate between them in order to find some consensus. Unfortunately Russia refused the OPEC proposal on 6 March and Saudi Arabia decided to adopt a new strategy around the defense of its market share and no longer focused on the defense of oil prices,” said the expert.

He pointed out that the present situation clearly shows that there is a need a strong cooperation within OPEC+.

“Very low oil prices are not positive for oil producers of course but also for oil consumers and for the world economy and the global environment. In order to address all these economic, political, social and environmental risks we need a lot of responsibility from the main players within the international oil industry,” added Perrin.


Follow the author on Twitter: @Lyaman_Zeyn