The oil price trend continues to fall, with no political decision or economic signal to stop it from falling. OPEC today published Friday’s closing price of its basket of crude oil at $24 a barrel, down 7% from Thursday’s quotation and 54% from the price of $52 a barrel on 4 March before the failed OPEC+ meeting.
Meanwhile, the price of the Brent and WTI markers is close to the $20 a barrel level we had pointed out in our Weekly Bulletin last Friday, 27 March. At the close of the markets in Europe, Brent oil has traded at $21.7 a barrel and WTI at $20.1 a barrel, a loss of 57% and 58.22% from the close of the day before the OPEC meeting, accumulating a loss of $26.6 and $30.16 per barrel respectively over 26 days.
The unprecedented devastation that the coronavirus has wrought on the economy and the world oil market has caused futures contracts to be held down, with future prices expected to be at record discounts. Oil analysts continue to debate the effects of COVID-19 and the lack of agreement among major oil producers. Citigroup’s latest analysis estimates that prices could reach $5 a barrel, considering that Brent and WTI have reached their lowest value in 20 years.
The demand for oil continues to fall freely, with an estimated loss of 10.5 million barrels per day in March and 18.7 million barrels per day in April. On the other hand, if the fall in demand occurs at the levels estimated by the IEA of a loss of 20 million barrels per day, commercial storage in OECD countries may increase by 600 million barrels per month. But if both the Russian Federation and the Kingdom of Saudi Arabia increase their production as announced by 2-3 million barrels per day, inventories could reach a level of 700 million barrels per day. Today the Kingdom of Saudi Arabia announced that it will increase its oil exports to a record 10.6 million barrels a day.
The WHO Report of 29 March reports that 29,891 people have died from the virus, and the number of infected people has reached 634,835, of which only 10% have outgrown the virus. Among the most important data are the increase of detected cases in the United States of 103,321 and the number of deaths in Italy and Spain, with 10,023 and 5,690 victims respectively.
The immobility of countries continues to increase following last week’s announcements of a tightening of the measure in most European countries and the UK, as well as the US, and quarantine measures in India and South Africa. Singapore’s president reports plans to restrict movement with a total of 800 cases, Vietnam prepares its cities for closure with 179 cases detected and Thailand plans a new economic stimulus package to overcome the effects of COVID-19.
While the announcements of the massive economic aid approved by the US administration and the congress for 2.2 trillion dollars have not been able to stop the fall of the economy and unemployment is growing rapidly in the US, the countries of the European Union still do not agree on the approval of the aid package called «Crown Bonds», while several heads of state and government have publicly complained about the lack of solidarity of some important EU countries that have affected the capacity of the countries most affected by COVID-19 to face the crisis.
Furthermore, on 27 March the head of the International Monetary Fund said that «It is clear that we have entered a recession that will be worse than in 2009, following the global financial crisis». In addition to this the IMF’s head for Europe said that «for every month that economic activities considered to be non-essential continue to be suspended in Europe, which represent a third of production, 3 percentage points of the annual GDP will be subtracted».
All these elements and announcements continue to add negative elements about the performance of the world economy and the oil market, especially in light of the fact that there is no effective scientific response against the expansion of COVID-19 and announcements of the extension of restrictions, such as President Trump’s announcement that movement restrictions are being extended until April 30.
Trump to the rescue of the price
In view of the disagreement between the OPEC and non-OPEC countries and the price war between the Russian Federation and the Kingdom of Saudi Arabia, the American president, Mr. Trump, has been the only head of state who has shown his concern about the fall in the price of oil and has called on both the Saudis and the Russians to seek some kind of agreement to stabilize the oil market, which is dangerously close to the level of 20 dollars per barrel.
Thus, in addition to the contacts that the US administration is making with the Kingdom of Saudi Arabia, as reported by the State Department spokesman last week, President Trump announced today that he would call and make direct contact with President V. Putin to try to broker an agreement to stabilize the price.
These announcements not only indicate the certain fact that the three largest oil producers in the world are going to seek agreements beyond OPEC in view of the manifest weakness of the organization of producing countries, but also that the US administration is feeling the economic impact that the drop in price will have on its own national oil sector, where the medium and small independent producers of shale Oil, using «fracking», will not be able to maintain their production since this is more expensive and requires prices of at least 30-40 dollars a barrel.
The most important news in the country has been the announcement by Russian giant Rosneft to withdraw from Venezuela and give its stake to a company, not yet announced, 100% owned by the government of the Russian Federation.
Although some authorities have tried to lessen the impact of this decision, it comes just hours after the U.S. Justice Department’s announcements against Maduro and other senior officials and days after OFAC imposed sanctions on Rosneft’s marketing subsidiaries responsible for marketing Venezuelan oil. It seems that the company, with 40% private partners, is unwilling to continue carrying the burden of Russian support for Maduro’s government by leaving the country.
In our article yesterday, 29 March, we pointed out that this transfer of assets and rights of oil exploitation of Rosneft in Venezuela, in association with PDVSA in the mixed companies, must be approved by the National Executive and by the National Assembly, as established by the Organic Law of Hydrocarbons.
On the other hand, the departure of Rosneft and its CEO from the country, to transfer operations to a company not yet identified, will surely produce a setback in the operational continuity of the mixed companies where Rosneft is next to PDVSA, even more so when these companies, especially PetroMonagas, have presented problems in operating their upgrading and increasing production in the Orinoco Belt.
It is clear that they do not wish to lose their presence in the country, which gives them geopolitical advantages in the region. But what does not seem clear is their interest in making efforts to increase oil production in Venezuela, especially when they are involved in a race to increase production in their own country and the international market is over-supplied with oil, while Venezuelan Merey crude is being traded, with difficulty, at values of around 8 dollars a barrel.