Can Trump end Saudi-Russian oil price war?
Economy02 April 2020, 12:57 189
According to experts, oil prices can rise only against the background of reduced output
Despite US President Donald Trump's efforts to negotiate with Saudi Arabia and Russia to stabilize prices, oil prices remain at $ 20. Oil prices fell 66 % in the first three months of the year as demand dropped due to the coronavirus pandemic and the world's largest oil producers "suffocated” the market with oil. Trump's announcement that he was discussing the fall in prices with Russia and Saudi Arabia, and that Moscow and the Kingdom would meet to find a solution, did not provide much support for prices, Marja reports. Leading analysts in the sector said the forecasts for oil are dire and that the oil could face a disastrous April. Iraq will increase production this month, and US crude stockpiles have climbed to their highest weekly increase since 2017. According to some analysts, the possibility of a discussion gives some hope to the market, which is in a chaotic state. However, production will need to be greatly reduced for prices to rise to pre-collapse levels. At 10:30 a.m. (Baku time) yesterday, West Texas Intermediate (WTI) traded at $ 20.56 and Brent crude at $ 25.83. Although the price of Brent oil rose to $ 26 after Trump's announcement, it soon fell back to $ 25. But will the US attempt to reconcile the two sides? Can an agreement be reached between the parties?
Economist, MP Vugar Bayramov said it was difficult to predict whether Saudi Arabia and Russia would reach an agreement. "Because there is no progress in the negotiations between the parties. There is a serious gap in oil production between Russia and Saudi Arabia, especially after the collapse of the OPEC + format. Against the background of the processes, there is a sharp decline in demand for oil. Thus, the daily demand for oil has decreased to 10 million barrels. The abundance of oil on the market has a direct impact on global oil prices. Saudi Arabia intends to increase its oil exports in the future. In this case, if the parties fail to reach an agreement, prices will fall below $ 20. Because the coronavirus has sharply reduced the economic dynamics. Air traffic has sharply decreased. This reduces the demand for oil. If the two countries reach an agreement to reduce production, prices may rise again. Currently, the only way to increase prices is to reduce production. If this is possible, prices may rise. At present, it is impossible to give optimistic forecasts for the oil market,” the MP noted.
According to economist Rashad Hasanov, the United States is interested in reconciling the parties. But Trump is unlikely to take a serious stance in this direction. "It should be noted that the US economy is quite diversified, and the damage to the US economy from falling oil prices is lower in comparison to other countries. In this case, the fall in prices will lead to a certain reduction only in the income of the oil sector of the US economy. Price reductions do not have a serious negative impact on other areas of the economy. On the contrary, lower energy costs for the population and businesses create conditions for even higher profits. Therefore, it is impossible to think that the United States will take a strong position in this direction. Trump is trying to protect certain corporate interests. It seems that in the current situation it is very difficult to achieve serious results in this direction. Under these conditions, oil prices will inevitably continue to fall. April is a very risky month in particular. The volume of commercial oil in stock has already increased significantly. At the same time, demand for oil is declining sharply as global isolation measures tighten. That is, the demand for oil has decreased by 26%. In the coming periods, producers will need to suspend operations in some fields. Against the background of declining investment in this segment, prices are likely to recover to some extent. But soon, prices are likely to fall further. Today, even the minimum levels were discussed. The issue of lowering the price of oil to $ 15 per barrel is on the agenda. Oil shale is one of the most influential factors in this process. Because this oil is offered on the market at a price below cost. This could lead to the closure of oil shale producers in the United States in the future. Russia and Saudi Arabia are unlikely to reach an agreement. In this case, neither side is sending a message of a new agreement. On the contrary, aggressive behavior continues. Both countries are waiting for the other side to take the first step. Therefore, it is very unlikely that any agreement will be reached in the OPEC + format in the short term,” he said.