After nearly two months of continuous collapse, American oil is in an ubiquitous situation: the value of a barrel was quoted in New York, Monday evening April 20, below zero dollar. In other words, investors looking to get rid of their barrels are ready to pay to find takers, the market is so saturated. For the first time in its history, the price of a barrel experienced an episode of so-called negative prices. On some specific contracts, the price of a barrel even went up to – $ 37!
This paradoxical situation is the result of the oil crisis caused by two factors: first, the global pandemic due to the coronavirus, which reduced demand in a few weeks by 30%. But also the breakdown of the alliance between Saudi Arabia and Russia, which embarked on a violent price war by increasing their production to gain market share.
This conflict degenerated into a major shock, precipitating the prices of a barrel of Brent, which refers to the world level, below 30 dollars. But the goal of the Saudis and the Russians was to get rid of competitors who had become frankly annoying: the oil companies of the American shale, and in particular in Texas. And in this regard, Moscow and Riyadh are about to win their bet.
Since 2018, the United States has become the world’s leading producer, with more than 12 million barrels extracted each day. The abundance of this offer posed a risk to the market for the major oil-producing countries: the Russians and the Saudis therefore imposed quotas to keep the price of a barrel at an acceptable level for them. This reduction in supply turned into a trap: the more they reduced their production, the more the Americans produced.
Barrels cannot find takers
It is this machine that is broken today: the world produces much more oil than it consumes and the price of a barrel has plummeted. With inexpensive black gold, stocks are filling up and barrels are not finding takers – especially since with containment measures car and plane travel are kept to a minimum.
“The limit of this precarious balance had to appear: it is chaotic to have a competitive and aggressive regime – like American shale oil – whose development is subject to a regulatory regime that allows it to survive! “, analyzes Patrice Geoffron, director of the energy geopolitics center at Paris-Dauphine.
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