The Russian and US presidents agreed to let energy officials conduct bilateral consultations and hopefully “shake hands” to stabilise the energy market, avoiding damage to the two world's largest oil and gas producers.
In recent days, the price of the US' West Texas Intermediate (WTI) light sweet crude was at US$20 per barrel, while Brent oil price was down to US$23 per barrel, the lowest level in 18 years.
Oil prices have plummeted amid a number of governments imposing blockades as well as restrictions on travel to prevent and combat the Covid-19 epidemic, resulting in lower oil demand.
In addition, the price of oil plunged as the world’s leading oil producers Saudi Arabia and Russia rushed to increase production after the two sides failed to reach an agreement to cut supply.
Saudi Arabia has announced it will not negotiate with Russia to balance the oil market despite increasing pressure from the US, the world's largest oil producer, who wants to prevent a drop in oil prices.
Saudi Arabia even said it would increase its oil exports by 600,000 bpd to a record 10.6 million bpd starting in May. The supply was added to a world market where the excess oil production and the decline in oil demand has rendered the “black gold” market “flooded”.
Meanwhile, according to analysts, demand is currently forecast to decrease by 15 to 20 million bpd, down 20% compared to 2019, so it is necessary for all countries to cut a large amount of output, not only OPEC members.
The oil price war between Russia and Saudi Arabia has seriously impacted US economic interests. Thanks to a boom in the shale oil industry, the US has become the largest oil producer in the world.
However, the current low oil price is threatening high-cost producers in the US, particularly damaging the shale oil industry. US President D. Trump called it a “crazy” oil war because Washington did not want the shale oil industry to be wiped out. With the prospect of US crude oil prices dropping below US$20 USD bpd, if stronger actions aren't taken, many US oil giants will be in danger of bankruptcy.
In order to salvage the situation, President D. Trump and Russian President V. Putin have agreed to let leading energy officials from the two countries discuss the global oil market. This agreement aims to stabilise the energy market and mark a new turning point in global “oil diplomacy”, particularly since OPEC+ failed to produce an agreement to cut production which has since sparkedan oil price war between Russia and Saudi Arabia.
Meanwhile, in order to balance and stabilise the market, Russia is seeking to admit more countries to join OPEC+. However, the current disagreement between the two sides is difficult to be resolve as Saudi Arabia recently rejected discussions with Russia about an expanded OPEC+. Saudi Arabia's state-owned oil group Aramco even announced it would increase its maximum production to 13 million bpd.
Global shock from the Covid-19 epidemic, along with the race to increase supply in Saudi Arabia and Russia, has made the world crude oil market fluctuate and there after plummet.
Executive Director of the International Energy Agency (IEA) F. Birol has predicted that the world's oil demand could reduce by 20 million bpd, or 20% of the total demand, in the context of three billion people currently staying at home.
The oil market is assessed to be going through a “unique” period in history, where it is witnessing a decline in demand alongside huge supply.
The responsibility now belongs to the world’s major oil producers, to promote coordination efforts to quickly stabilise the market for “black gold”.
