Oil Price Crash and Russia-Saudi Arabia price war Explained
Oil Price Crash And
Its Implication
crude Oil is flowing into market every day like there's no tomorrow, even a layman can understand if things like this this happen, chain of demand and supply are interrupted which have resulted in making crude oil worth of some pennies . crude oil which sometime went as high as $148 per barrel is at the rock bottom as of now. so lets analyse the current situation and figure reason for the same.
steep decrease in demand of crude oil
With more than 70% of world population restricted to their home, planes standstill at airport and factories shut down temporarily, demand for the crude oil in international market have shrunk immensely, to put things into perspective, India which is one of the highest oil feeding nation in the world used to consume about 5 million barrel of oil on daily basis before the outbreak of global pandemic, which as of writing the blog have come down to merely less than 1 million barrel per a day, same result have been found in other oil importing nations across the globe .
while on the other hand crude oil producing nation have failed to decrease the the production of crude oil, fearing of the adverse effect that it will have on their oil industry but irony is high production is doing more harm to their crude oil industry then to save it from losses.
Russia And Saudi Arabia price tussle
Saudi Arabia along with other OPEC [Organization of Petroleum Exporting Countries] approached Russia to decrease the oil production by 30% so that everyone can have respected share of profit in selling the oil. but Russia is seeing it as opportunity to hit the USA crude oil industry refuse the crown prince offer and to make situation worse, instead started to increase the production and started selling crude oil for cheaper prices which acted as fire to dry grass and started causing crude oil price crash.
benchmarks for oil
To understand more about current oil price crisis its important to know about different benchmark of oils, to keep it simple we will discuss two main benchmarks
It is benchmark used for oil produced in United States of America. mainly in the state of Oklahoma. it is transported through pipeline and is mainly for the self consumption of United States only . It is this benchmark making the headlines of trading even in negative price because producers are not able to dock it in ships once they ran out of storage facilities , hence they are even ready to pay you for buying there crude oil because the cost holding is getting more than the actual value of crude oil.
2. Brent[ North Sea Crude]
Brent oil is found in north sea near United kingdom and Norway and is transported throughout the world with ships including to India and therefore can be dock at ship containers once oil reserve are full. this is reason we are not seeing a steep fall in price of Brent crude oil even when nation producing Brent have there crude oil reserve overflowing.
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Implication on india and rest of the world
there is a common myth going around for quite a time now that oil importing nation including India should buy crude oil for cheap price for next few months or even a year to cut down there import bill but there's a catch,most of the countries have there oil reserve flowing already . India is also left with the capacity of mere 15 million barrel in its reserve,seeing current consumption trend we can also pill up the crude oil for next 10 to 12 days only .
so its pretty safe to say no crude oil importing nation can take the correct advantage of low oil prices unless they find some magical way to store that crude oil.
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