Original title: There are no endless banquets in the world, Saudi Arabia starts a price blitzkrieg! The oil market is now in an epic situation. Oil distribution may have recorded the biggest decline in nearly 30 years
On Monday (March 9), international oil prices plummeted by more than 30%. After Saudi Arabia lowered the official price of crude oil and drew up plans to drastically increase crude oil production next month, starting a price war, ignoring global public health events and causing a setback in global demand growth.
Earlier, the Organization of Petroleum Exporting Countries (OPEC) proposed further drastic production cuts to stabilize the oil market, but Russia rejected this proposal. OPEC, on the other hand, responded by completely lifting output restrictions, and Saudi Arabia then lowered the official price of all grades of crude oil in the country by 6-8 US dollars.
According to Huitong Finance and Easy Huitong software, at 17:10 Beijing time, NYMEX crude oil futures plummeted 21.39% to 32.45 US dollars/barrel; ICE Brent crude oil futures plummeted 20.06%% to 36.19 US dollars/barrel.
ICE Brent crude oil fell to 31.02 US dollars per barrel earlier, the lowest level since February 12, 2016, and is likely to experience the biggest daily decline since the Gulf War began on January 17, 1991.
NYMEX crude oil futures hit $27.34 earlier, which is also the lowest price since February 12, 2016. NYMEX crude oil futures may have recorded the biggest record decline, surpassing the 33% decline recorded in January 1991.
Jonathan Barratt, investment director at Sydney's Probis Securities, said: “I think all of the predictions have failed; it's like a bottom to bottom competition to get orders. Compared to the last price war of this kind that began in November 2014, the outlook for the oil market this time is even more frightening, as it is catching up with global public health events and leading to a sharp drop in oil demand.”
Negotiations between the Organization of Petroleum Exporting Countries (OPEC) and Russia on a production reduction agreement broke down last Friday (March 6). OPEC sources said that Russia's poor implementation of production cuts has always made Saudi Arabia dissatisfied.
Saudi Arabia's production capacity is 12 million b/d, making it capable of rapidly increasing production. Two sources said on Sunday (March 8) that Saudi Arabia plans to drastically increase oil production to over 10 million b/d in April.
There are no unbroken banquets
The OPEC+ Alliance, represented by Saudi Arabia, the world's largest oil exporter, and Russia, the world's second largest oil producer, continued to cooperate to cut production for more than 3 years. The cooperative production cuts aim to raise oil prices and maintain the balance of the budgets of oil producers.
Matt Stanley, senior agent at Starfuels in Dubai, said, “The agreement is destined to end. Since production cuts began to be implemented, US shale oil manufacturers have continued to expand their market share.”
Keith Barnett, senior vice president of strategy at ARM Energy in Houston, said, “The duration of the low oil price environment is calculated over months, unless public health risks trigger a new decline in global markets and consumer confidence.”
Major investment banks have lowered their estimates of crude oil demand growth.Goldman SachsGlobal demand is expected to decrease by 150,000 b/d, and ICE Brent crude oil prices for the second and third quarters will be lowered to $30 per barrel.
Goldman Sachs said in a March 8 report: “Saudi Arabia's sharp drop in official prices and Russia's reluctance to reach an agreement suggests that OPEC+ has a very low chance of reaching an agreement in the short term.”
Goldman Sachs pointed out, “Although we do not rule out the possibility that OPEC+ will reach an agreement in the next few months, we also believe that this agreement itself is unbalanced, and there is no economic reason to cut production.”
Goldman Sachs also said, “Compared with the round of collapse that began in the fourth quarter of 2014, the outlook for the oil market is now even more serious because of a sharp drop in demand due to global public health events.”
The global public health incident has spread to major economies such as Italy and South Korea, and cases in the US are also rapidly increasing, which has heightened concerns that demand for crude oil will decline this year.