Oil Prices Surge Even as Global Demand Bottoms Out

Oil prices began to rise as Donald Trump hinted at a possible negotiation between Russia and Saudi for reducing oil production. Earlier, in a meeting to cope with the slowing demand of oil due to Coronavirus, Russia and OPEC had disagreed on production cut and waged a price war that nearly halved oil prices.
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Crux of the Matter

When Cuts Do More Good
Brent Crude Prices were up on Thursday after US President Donald Trump announced that Russia and Saudi may sit to re-negotiate oil production cuts. He said that he expects a minimum supply cut of 10 million barrels per day (bpd) or more. Russian Energy Minister also indicated that Russia may enter talks with Saudi. Trump said that the price-war was bad for both Russia and Saudi. International Crude oil benchmark, Brent Crude was up by 21% at $29.94, whereas US benchmark, West Texas Intermediate (WTI) was up by nearly 25% at $25.32.

IHS Markit and Standard Charter estimate that oil demand could drop by as much as 10 million barrels per day in April – a 10% drop in demand. This estimated level, if true, would be seen the first time since 2012. To cope with this slow demand and balance oil prices, supply cuts have become inevitable.

Price War
Oil Price War began in the second week of March after a deal to cut oil production did not work out between Russia and Saudi. Saudi, in retaliation to Russia, began offering oil at $8-$14 less and threatened to increase oil production by 13 million bpd. Thereafter, oil prices plunged 30%. Since then, global oil prices have been falling and hovering around $30 as compared to ~$70 at the beginning of the year.

Complete Coverage: Russia And Saudi Weaponize Oil Prices

It must be noted American Shale oil companies find it hard to survive in a market where oil prices are low. It is also in the vested interest of American companies to see a rise in oil prices. At a time when there is a tepid oil demand, low prices would benefit developing nations that can buy more oil at a cheaper rate.

Curiopedia

Oil Production – Total world oil production in 2019 averaged 80,622,000 barrels per day. Approximately 68% came from the top ten countries, and an overlapping 44% came from the fourteen current OPEC members. The top three producers have in recent history been (alphabetically) Russia, Saudi Arabia, and the United States. Each of these countries experienced major production declines at different times in the past, but since 2014 all three have been producing near their peak rates of 9 to 11 million barrels per day. Saudi Arabia and Russia also top the list of oil exporting countries, while Russia is not a member of OPEC. The monthly U.S. oil production reached 10.07 million b/d in November 2017, the highest monthly level of crude oil production in U.S. history. In May of 2019, the country became a net oil and gas exporter, the first time since 1953.

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