The oil markets have been slammed by demand destruction caused by the coronavirus pandemic and the Saudi Arabia-Russia price war that is flooding markets with extra supply.
The shutdown of oil wells has already wiped out nearly 1m barrels a day from global production, but the figure is expected to rise as producers run out of space to store their extra oil as the crisis continues.
Although the governments try to stimulate economies by fiscal policies and central banks by monetary policies, crude oil prices are trading below $30 per barrel since March 16.
Brent crude fell to $23.03 a barrel at one point on Monday morning, its lowest level since November 2002.
The price of oil is now so low that it is becoming unprofitable for many oil firms to remain active, analysts said, and higher cost producers will have no choice but to shut production, especially since storage capacities are nearly full.
If OPEC and its allies, known as OPEC+, had agreed to extend the 2.1 million barrels per day (bpd) and add a further 1.5 million bpd, there is little doubt crude prices wouldn't have crashed as they did in the wake of the breakdown of the talks, and the subsequent move by top exporter Saudi Arabia to flood the market.
Hirs said the current low price environment will hurt all OPEC+ members, as well as other oil producing countries that are not part of the group. Prices declined further after Riyadh and Moscow announced the following week that they will increase their crude productions starting from April, which triggered a price war for larger market share.
The price of oil is now so low that it is becoming unprofitable to many oil firms to remain active, analysts said, and higher cost producers will have no choice but to shut production, especially since storage capacities are nearly full.
But Stephen Innes, chief global market strategist at AxiCorp, said prices had now "softened".
On the demand side, the number of rising novel coronavirus (Covid-19) cases around the world continues to weaken oil consumption and global crude demand. "If oil prices go lower to such levels, then we should expect to see shutdown of production facilities", he explained.
The decline in oil prices, it said, will negatively impact the capex outlook for oil related sectors as well as oil producing countries, a PTI report said.
The world normally uses 100 million barrels of oil daily, but forecasters predict as much as a quarter of that has disappeared in just a few weeks.
USA oil production is now running at roughly 13 million barrels per day, a record, but is expected to drop by more than 1.4 million bpd by the end of the third quarter 2021.
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