In early January, following America’s assassination of Iranian General Qasem Soleimani, tensions escalated in the Middle East driving Brent crude to $70 per barrel.
Then, as data from the U.S., Europe, and Asia supported a slowing global economy, followed by Coronavirus fears, oil prices, now at around $54 a barrel for Brent crude, have hit a 13-month low.
With much more supply than demand, an OPEC subcommittee has recommended the oil cartel and its affiliate producers cut outputs by another 600,000 barrels a day through June.
The group already had agreed in December to cut back 1.7 million barrels a day for the first quarter of 2020, with Saudi Arabia shutting in an additional 400,000.
The subcommittee’s suggestion would bring the total reduction to 2.7 million barrels daily, up from 2.1 beginning in January.
Russia is known to resist more production cuts while Arab states favor them.
The cuts are said to be a response to the 20-percent decline in oil prices in recent weeks. The price of benchmark Brent crude peaked above $74.00 last April and closed at $54.50 last Friday. The recent drop is being widely attributed to the worldwide economic slowdown set off by the Coronavirus outbreak.
China Power
It is forecast that China’s oil use will drop 25 percent this month because the Coronavirus epidemic is stopping manufacturing, repelling tourists, curtailing shopping, and keeping workers off the job.
China has restricted travel, quarantined cities, and many factories have remained closed beyond the 3 February end of the Lunar New Year holiday.
The drop could be as much as 3.2 million barrels a day compared to February 2019. The figure represents about 3 percent of the world’s oil use.
BP, the British energy company, has said the viral epidemic could shrink oil use worldwide by as much as 500,000 barrels a day for the rest of this year. Chevron has projected lost daily usage of 200,000 barrels through 2020.
TRENDPOST: Again, as noted, Trends Journal readers know that oil prices began their long-term decline well before the virus epidemic.
While the Coronavirus may be impacting oil prices somewhat now, the more powerful factor forcing prices down is deeper and simpler: producers are pumping more oil than the world can use as the global economy slows.
Global production was 100.7 million barrels a day in December, according to the International Energy Administration, which also reported the world’s oil consumption at 100.1 million in October, with demand falling since then.
Brent crude prices peaked above $80 in early October 2018 and have been declining since, in tandem with growing concerns about the myriad signs of a slowing world economy that we’ve reported on for more than a year.
Thanks to the U.S. fracking frenzy, natural gas prices tell the same story. The benchmark price at Louisiana’s Henry Hub pipeline junction reached $4.70 per million Btu’s in November 2018 and closed at $1.90 on 3 February this year.
Both oil and gas prices have slowly declined together over the past 16 months, long before the world had ever heard of the Coronavirus.
Prices won’t rise again until supply and demand come back into balance, regardless of the virus fears abating… and/or a black swan event such as war in the Middle East against Iran.
