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Coronavirus destroys demand for oil. However, Saudi Arabia has just announced that it would open the gates even wider than planned in May. Oil production in the United States is likely to suffocate under the abundance of stocks.
World oil storage capacity is already three-quarters full and it might not be enough if Saudi Arabia keeps its promise to release an additional 3 million barrels a day in April and another 600,000 barrels a day, as it does. announced this Monday.
Oil consumption dropped so suddenly with the immobilization of transport on the planet that we had to store 100 million barrels in a month in tanks, on land, and at sea in tankers, floating stocks, as in off Texas. We even store oil in pipelines in the United States.
Creditors Ready To Drop Shale Oil
Storage that does the business of a few … Those who own tanks or tankers and some traders who sold their oil over time, and who will sell it for more. But for American producers, this forced storage is an additional cost, when they are already losing money.
Their profitability was based on a barrel between 35 and 55 dollars, it is not worth more than 20. Unlike the previous plunge of 2014, creditors and their shareholders are no longer ready to put their hands in their pockets to save the oil from shale.
This is why the American administration is approaching Saudi Arabia and Russia in an attempt to reach an agreement. ” Donald Trump understood that there was no internal solution in the United States and that the purchase of oil by strategic reserves would be a drop in the ocean “, Comments Philippe Sébille-Lopez, from Géopolia.
The American secretary of Energy Dan Brouillette went to discuss in Saudi Arabia, the secretary of state Mike Pompeo met with the authorities of Ryad and with the leaders of OPEC, the “cartel” doomed to the gémonies by the President of the United States a few months ago.
Washington reaches out to OPEC and Russia
But without Russian concessions, the Saudis will always threaten to flood the oil market. Hence the extended hand of Donald Trump to his Russian counterpart Vladimir Putin. In exchange for softening US sanctions, the Kremlin could also agree to close the floodgates a bit.