Los Angeles, CA, July 24, 2020 (GLOBE NEWSWIRE) — The coronavirus has impacted multiple areas of society, including the energy sector. Due to the global outbreak, demand for oil has diminished, resulting in plummeting oil prices and production declines, especially in the wake of the Russia-OPEC price war.
“As 2020 continues, there are two big bumps ahead that the energy industry expects to hit,” noted Adam Ferrari, an accomplished chemical engineer, and the founder of mineral acquisition company, Ferrari Energy. “Managing the current public safety issue that has taken a hit on the market, and simultaneously surviving the low-price scenario, decreased demand, and the need to generate revenue while controlling debt responsibilities.”
The Russia-OPEC Price War
The Russia-OPEC price war started after Russia decided against being a team player in March when the global market was under pressure from the COVID-19 pandemic. Russia, along with Saudi Arabia, is considered a top producer of global oil. When the coronavirus outbreak caused Asia to decrease oil consumption drastically, oil-producing nations needed a survival plan. A month before the major oil production meeting, China had dropped its foreign oil imports by twenty percent.
OPEC (Organization of the Petroleum Exporting Countries) is made up of fifteen nations that lead in producing worldwide oil. When the group decided to meet at their headquarters in Vienna to discuss a solution to the diminished oil demand, Russian officials received an invite to join. However, Russia is not a country included in OPEC. The invitation extended to Russia was due to a deal Russia agreed to three years ago. The agreement was a pact called OPEC+ that requires Russia to harmonize its production levels with the OPEC group.
During the OPEC meeting that incorporated Russia, a suggestion made by OPEC’s leader, Saudi Arabia, did not sit well with Russia. Saudi Arabian officials offered a plan to maintain oil’s high prices to generate more revenue for oil-dependent economies during the pandemic. This proposition would entail all participating countries to slash their oil manufacturing by around one million barrels a day. The idea gave Russia the short end of the stick as it would require the highest production cut of about five hundred thousand barrels a day.
Russian officials were vocal against the plan. Their motivation might be to ready up for higher demands in Asia again for profit gains or keep oil prices low to demolish the American shale oil industry.
Unhappy oil leaders in Saudi Arabia did not hold back in their frustration. Their response to Russia embraced a tremendous reduction in export prices, which led to the most significant single-day drop in oil prices since 1991, with barrel costs lowering around eleven dollars to equal thirty-five dollars a barrel. Thus, such reaction sparked the flame of the price war between Saudi Arabia and Russia.
About Adam Ferrari
Adam Ferrari is the founder of Denver-based mineral acquisitions company Ferrari Energy. He is a chemical engineer…