Saudi Arabia has the lowest extraction costs among any major producer at around $3 per barrel, giving it an advantage over others, research from MUFG Bank showed.
The Kingdom unexpectedly called an urgent meeting of oil exporters after US President Donald Trump on Thursday revived slumping oil prices with a tweet saying he expected the Kingdom and Russia to cut production by 10-15 million barrels per day.
Global oil demand has fallen off a cliff following a global slowdown caused by the coronavirus pandemic, which has been compounded by a collapse in an agreement between OPEC and allied exporters, known as OPEC+, to regulate global supply, while global stockpiles are running out of space for excess crude.
“With at least 25 million barrels per day of lost demand of petroleum products due to the corona outbreak and global lockdowns, combined with an oil flood from Saudi Arabia, global remaining crude oil storage capacity of about 700 million barrels will fill up within one month,” Rystad Energy’s Head of Analysis Per Magnus Nysveen said.
MUFG’s analysis shows that the Kingdom’s extraction costs of around $3 per barrel, compared to others, such as Russia at around $30 per barrel, “augurs in Saudi’s favor.”
US shale oil firms, who may have been the target of Russia’s move to distance itself from the OPEC+ compact, have been among the first to suffer the low price environment. The companies have a significantly higher price at which they can pump oil out of the ground at between $43 to $55 per barrel.
On Wednesday, US shale oil firm Whiting Petroleum Corporation, a Denver-based shale oil firm, said it was filing for Chapter 11 bankruptcy due to the “severe downturn in oil and gas prices” attributed to the Saudi-Russia price war and the coronavirus pandemic.
“Russia’s decision to pull out of the OPEC+ agreement triggered the price collapse, and was squarely targeted at the shale sector given its current financial distress,” MUFG said in mid-March.
US President Trump said on Saturday he would put tariffs on imports of crude oil or take other measures if he has to protect energy workers from the oil price crash.
“If I have to do tariffs on oil coming from outside or if I have to do something to protect our ... tens of thousands of energy workers and our great companies that produce all these jobs, I’ll do whatever I have to do,” Trump said.
The US has become the largest producer of oil in the world after a decade-long surge in output, but output levels have already begun to fall since last month when prices collapsed. Some US oil producers have called on Trump to do a deal with the other producers, while others have asked for a federal bailout.
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