The Coronavirus Means It's A Truly Free Market For Oil - Bloomberg:
At the point we’re now at, postponing the oil-price war won’t make a lot of difference for an industry that’s already breaking down under the weight of demand destruction. It’s too late to use diplomacy and artful negotiations to share the burden of output cuts that are now inevitable.
The pumping free-for-all unleashed by Saudi Arabia and Russia is important for the long-term shape of the oil industry, but, as my colleague Javier Blas pointed out here, it’s a sideshow to the havoc being wrought by the lockdowns crippling economies worldwide in response to the coronavirus pandemic. Forecasts of a catastrophic drop in oil demand abound, with estimates of a whopping 20% year-on-year reduction in global consumption in April becoming more common. That’s 20 million barrels a day, equivalent to the entire consumption of the United States.
It would be impossible for any small group of producers to mitigate that kind of impact by reducing output, unless Saudi Arabia and Russia were both to slash their production to almost zero. And that’s not going to happen.
On Wednesday, U.S. Secretary of State Mike Pompeo called on Saudi Arabia’s Crown Prince Mohammed bin Salman to take the lead as his country prepared to host a meeting of the Group of 20 nations. Pompeo urged the kingdom “to rise to the occasion and reassure global energy and financial markets.” That’s a reasonable request. Somebody has to show leadership and it doesn’t look like it’s going to be President Donald Trump.
At the point we’re now at, postponing the oil-price war won’t make a lot of difference for an industry that’s already breaking down under the weight of demand destruction. It’s too late to use diplomacy and artful negotiations to share the burden of output cuts that are now inevitable.
The pumping free-for-all unleashed by Saudi Arabia and Russia is important for the long-term shape of the oil industry, but, as my colleague Javier Blas pointed out here, it’s a sideshow to the havoc being wrought by the lockdowns crippling economies worldwide in response to the coronavirus pandemic. Forecasts of a catastrophic drop in oil demand abound, with estimates of a whopping 20% year-on-year reduction in global consumption in April becoming more common. That’s 20 million barrels a day, equivalent to the entire consumption of the United States.
It would be impossible for any small group of producers to mitigate that kind of impact by reducing output, unless Saudi Arabia and Russia were both to slash their production to almost zero. And that’s not going to happen.
On Wednesday, U.S. Secretary of State Mike Pompeo called on Saudi Arabia’s Crown Prince Mohammed bin Salman to take the lead as his country prepared to host a meeting of the Group of 20 nations. Pompeo urged the kingdom “to rise to the occasion and reassure global energy and financial markets.” That’s a reasonable request. Somebody has to show leadership and it doesn’t look like it’s going to be President Donald Trump.
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