Monday, March 4

How likely is a decline in oil production due to the coronavirus

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Decrease in oil production and cost reduction: consequences of coronavirus

The coronavirus continues to cause harm to people’s health and lives. But its effects are not only felt in the population, the world economy is also suffering. In order to maintain its performance and prevent a prolonged crisis, a number of measures have been taken in each segment. The oil industry is also considering the possibility of reducing negative trends. To this end, Saudi Arabia has offered OPEC partner countries to reduce oil production by 0.5 million barrels per day. According to the country’s representatives, this measure will allow maintaining the increased quota for the period of the current situation with the Chinese epidemic.
The issue of changing the volume of resource extraction has already been raised earlier by the relevant Iranian minister. He urged the OPEC countries to act actively, insisting that if the participants do not agree, there is no need to hold the meeting scheduled for February.
The difficult situation with the oil became obvious last week, when at the auction in London the value of Brent fell by $55 per barrel, which was a 10% decrease. This was a consequence of the tension around the coronavirus and the decline in activity in the large Chinese market. Many are afraid to take cardinal steps, waiting for what will happen in the future and do not dare to make predictions – everything is too vague.
Experts name negative sentiments among market participants as the reason of oil price decrease. However, analysts are sure that in case of elimination of the epidemic the segment will be able to recover in a short time.

OPEC has developed a number of measures, which will help to soften the consequences of coronavirus for the oil industry. But in the event of a massive decline in demand, decisions will have to be made quickly and harshly, which may displease many market players.
Experts warn that the decline in oil prices will continue in the future. The situation is worsened by the decline in the Chinese economy and the lack of progress in treating the epidemic.
In order to be able to react quickly to changes in quotations on exchanges, representatives of the UAE, Russia, Saudi Arabia and Iran regularly communicate, exchange information and develop possible solutions to the problem.
Many are afraid of a repeat of 2003, when SARS caused negative processes, which were eliminated within a year, although the epidemic itself was eliminated in two months. To date, the market does not feel the catastrophic effects of coronavirus, fears and panic play a major role. There are no real prerequisites to consider the volumes of oil production and supplies yet. As for fuel transit to China – everything is going as planned, without reducing or stopping supply.


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