On Monday, April 20, trading in the global energy market is accompanied by a sharp collapse in world oil prices.
The cost of futures for raw materials of the American brand WTI with delivery in May collapsed by more than 80% and fell to $ 2.99 per barrel. The value has become the lowest since the start of the first auction of this variety - since 1983.
At the same time, the price of the June Brent crude oil futures fell by more than 6% - to $ 26 per barrel.
Interviewed RT analysts explain the observed price dynamics by the fall in global oil demand due to the coronavirus pandemic. According to official data from the World Organization (WHO), the total number of people infected in the world exceeded 2.31 million, of which more than 157 thousand died. The spread of the disease and quarantine measures provoke a massive reduction in trade, passenger traffic and fuel demand. As a result, energy consumption is also reduced.
“As experts from the International Energy Agency (IEA) previously stated, in April, oil demand will fall by 29 million barrels per day and will reach its lowest level since 1995. Moreover, according to our estimates, in May, energy consumption may fall by 30-35 million barrels per day. In general, according to the results of 2020, the IEA expects a drop in demand by 9.3 million barrels per day. These numbers increase pressure on the market and prices, ”said Anton Pokatovich, Chief Analyst, BCS Premier, RT.
Moreover, in a pandemic, investors are afraid of filling up oil storage facilities and are massively selling contracts for the supply of raw materials in May. This point of view in an interview with RT was expressed by the analyst of Finam Group Alexey Kalachev.
“May futures expire soon. And those who were able to realize will be forced to enter the oil supply under these contracts. And there is nowhere to deliver, as a matter of fact - the storages are filling up with terrible speed or are already full. This is a purely stock market situation - May contracts are falling in price, and investors are shifting money to June or July futures. Thus, since it is virtually impossible to fulfill the May contract, investors are forced to sell it at any price, ”the expert explained.
An additional reason for the collapse in US oil prices was the negative dynamics of the US economy. The creator of the ITLEADERS venture capital club, Egor Klopenko, spoke about this in an interview with RT. According to the Congressional Budget Office, in the second quarter, US GDP in annual terms may decline by more than 28% in annual terms. At the same time, Morgan Stanley experts predict a collapse immediately by 38%.
According to Klopenko, quarantine measures introduced in the United States led to a decrease in business activity and the suspension of a number of industries. As a result, the demand for energy raw materials from enterprises has additionally decreased and provoked an even greater collapse of quotations.
“In the US, amid a recession, oil has become an illiquid commodity. This week, for example, in Texas, some buyers paid $ 2 per barrel. Now the country's stocks of raw materials are growing at a high speed, while transporting oil from the United States to European customers is many times more expensive than oil from the Persian Gulf states. If prices continue to be below $ 20 per barrel, then American producers will have to pay extra to consumers in order to somehow get rid of their oil, ”the expert explained.
Shale sunset
Note that amid falling oil prices, shares of the largest shale companies in the United States began to rapidly fall in price. So, since the beginning of March, the value of Occidental Petroleum securities has fallen by more than 60% (from $ 32 to $ 12 apiece), and the stock quotes Continental Resources and EOG Resources sank by 43% and 34%, respectively.
As Artyom Deyev, head of the AMarkets analytical department, said in an interview with RT, investors fear the bankruptcy of shale producers and sell risky securities. According to the analyst, at the current price level, companies are highly likely to be unable to pay bills and service debts.
“The cost of producing shale oil is much higher than with traditional production. For example, the average cost price of a barrel produced in the Perm basin (USA) is $ 40-50, while the cost of raw materials in traditional production is $ 15 per barrel. In conditions when supply prices are actively decreasing, and storage costs are rising, many medium-sized participants in the American oil industry may not withstand the pressure and will leave the market, ”the analyst explained.
According to Haynes & Boone, from 2015 to 2019, a total of 208 North American energy companies went bankrupt with a debt of $ 121.7 billion. It is expected that in 2020 the number of ruined producers may increase.
According to Anton Pokatovich, this state of affairs may accelerate the growth of unemployment and put additional pressure on the country's economy. At the same time, a decrease in oil production, commensurate with the levels of Russia and Saudi Arabia, can mitigate the US crisis.
Recall that in mid-April, the parties to the OPEC + agreement resumed cooperation and agreed from May to June to reduce the production of crude by 9.7 million barrels per day. At the same time, in the framework of the OPEC + deal, Russia and Saudi Arabia will take on the bulk of the reduction. Each of the two countries will have to reduce energy production by 2.5 million barrels per day - up to 8.5 million.
“The United States is already making some attempts to reduce oil production. Thus, Continental Resources, which produces oil in Oklahoma and North Dakota, reported a decrease in production in April and May by about 30%. In addition, a number of Texas oil shale companies have closed a number of old fields. Washington understands that without a slowdown in oil production, the market will not be able to stabilize in the near future, ”the analyst concluded.