From the Corona virus to tensions between the U.S. and Iran so far, the year 2020 has been filled with uncertainties for the global oil market. A recent production cut by OPEC in conjunction with the Russia Federation has failed to impact prices and the outlook for the market remains bearish according to the opinion of diverse experts and that could end depending on the outcomes of an upcoming meeting of the organisation already clouded by uncertainties on the spread of coronavirus and its impact on global demand, which has been differently assessed and viewed by player such as Saudi Arabia and Russia.
In this regard, the price of Western Texas Intermediate stands at $55 down, representing a considerable crash of around 50 dollars compared to prices of $100 in 2014 and despite many geopolitical risks and the wishes of OPEC producers, overall global oil production has continued to grow this year and will likely continue to grow. Indeed the U.S. Energy Information Agency predicts that global oil production will rise from roughly 100 of barrels per day (bpd) to nearly 10.2 million bpd by the end of the year. https://www.eia.gov/outlooks/steo/report/global_oil.php.
Therefore in this logic, this oil glut has been driven by the continued growth of U.S. shale production. Indeed continuing production across the U.S. has helped soften the impact of a number of geopolitical risk factors including ongoing wars in Iraq and Libya as well as tension between Iran and the U.S.
The price could remain low for a long time because there’s more than enough production in global oil markets, but where the wild card remains China where the deadly Corona virus has already killed over 2,000 people and may have significant impact in the long term and where it’s important to stress that China surpassed the United States as the world’s largest energy importer in 2017 and many believe the current health crisis there could become an economic one with important consequences for its oil demand.
While OPEC continues with its cut deal with non OPEC producing nations especially led by Russia, overall global oil production has grown from around 2 millions of barrels per day (bpd) to over totalling over 11 millions bpd by the end of 2019. This has been driven by continued U.S. shale production.
In this regard, low oil prices will benefit oil-importing economies and their consumers especially China, India, and other fast developing economies with sustained increasing demand and that leverage on this landscape to grow its strategic reserves and in the long run reflected also in the prices of fuel and gasoline this including the case of the U.S, but remains to be determined the real impact on the demand for China amid the unfolding of the corona virus. About this. Alex Kimani in OilPrice.com states: “The China coronavirus outbreak and continued inventory builds in the US market have been depressing prices”
Regarding the dynamics of US shale oil production, in the case of the continuation of low oil prices, the growth of U.S.production is expected to slow down in 2020 due to the fall of crude oil prices. The currently suppressed price environment, which is not expected to disappear anytime soon, makes it more difficult for completion rate of oil wells to achieve previously expected recovery after completion rate of oil wells saw deep monthly declines in the last two months of 2019. On this, S&P Global Platts Oil reported “ total US oil and gas rig counts were down a net five last week to 825 amid continued low commodity prices and restrained capital outlays throughout domestic basins”.
Henceforth, its still uncertain what outlook will be for oil prices and which countries will be winners and losers out of this global quest for oil dominance and preponderance and market share, with a rise of the development of renewable resources and the use of EV all across the globe, with the traditional oil producing powers struggling to maintain their hegemony over the energy landscape
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