(Source : Foreign Affairs – David Yergin) – The Oil Collapse
A Pandemic and a Price War Have Together Brought Energy Markets to a Crisis
The global oil market has never in history collapsed as precipitously as it has right now. The oil and gas industry, which provides almost 60 percent of the world’s energy, is engulfed in a double crisis that would have been dismissed as unthinkable at the start of this year. A price war, with producing nations battling for market share, has become lodged in the larger crisis of the novel coronavirus pandemic and what will likely be the worst recession since World War II. The resulting collapse in demand will be bigger than any recorded since oil became a global commodity. Oil prices are already down two-thirds since the beginning of 2020 and still falling. The decline in global consumption in April alone will be seven times bigger than the biggest quarterly decline following the 2008–9 financial crisis. In areas that lack access to storage and markets, the price of a barrel of oil could fall to zero. (…)
THE END OF THE NEW OIL ORDER
As with so many other industries, the extreme distress in oil markets was caused by the coronavirus pandemic. But in the case of oil, that distress comes with a geopolitical twist. (…)
China, the biggest growth market for world oil, was suddenly shut down.
But the first phase of the coronavirus crisis, the outbreak in China in January and February, fractured the entente. China, the biggest growth market for world oil, was suddenly shut down. Instead of global demand increasing, as was expected, it fell by an unprecedented six million barrels per day in the first quarter of 2020.
At the beginning of March, in and around OPEC and OPEC+ meetings in Vienna, Saudi Arabia and Russia began discussions about how to respond. It quickly became clear that they had very different perspectives. The Russian budget was based on what was seen as the relatively low price of about $42 a barrel. (…)
Saudi Arabia insisted on the cuts. Russia emphatically said no. And so OPEC+ split apart. (…)
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