Oil: Supply side is on the move and China is going bargain hunting!

The epic drop in oil prices is causing the three biggest oil producers Saudi Arabia, Russia and the USA to talk to each other again. Meanwhile, the US president is tweeting and announcing an imminent cut in Opec+ production of 10 million barrels per day. The oil price has risen sharply as a result. Since Wednesday the Brent crude oil price has risen by over 25 percent.

However, neither Russia nor Saudi Arabia has confirmed any agreement. Only a virtual special meeting has been arranged for Monday – but nothing more so far. It will not be easy, however, and the US oil industry will have to play its part. If there is no signal here, the remaining OPEC+ countries will also hold back. The increase in American oil reserves could at least be a signal of this kind. However, it would be better if the US frackers could agree on a reduced production target across all sectors. A joint cut in the big three („Opec+Texas alliance“) would then be more likely.

There is no doubt that the low energy prices are beneficial for the global economy and the USA, especially in the current economic situation. However, the Americans have become an important player in the global oil market in recent years. With the current oil prices, the US frackers are unprofitable – a first driver has already had to file for bankruptcy. A wave of bankruptcies in this sector would stress the US supply concept and at the same time put a strain on the US banking system. Two important reasons to become politically active here.

Saudi Arabia ramps up production to over 12 MMBD in April. This will result in a massive increase in exports. China benefits from low oil prices. Beijing will significantly increase its strategic oil reserves. China also urged companies to fill their oil tanks. The initial goal is for stocks to cover 90 days of net imports. However, this figure can be increased to 180 days in a second step.

In summary, it can be said that the supply side players are under pressure due to the low oil price. Here it is necessary to wait for Monday’s results. Even if there is a concerted cut, inventories will remain high for the time being and thus oil prices will remain low for the time being. Only over the next 12 months do we see the price at around USD 40, also due to the recovery in demand.

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