OPEC and IEA Make Rare Joint Statement
March 17th, 2020
The OPEC and non-OPEC technical meeting planned for today in Vienna has been called off.
The IEA and OPEC said in a rare joint statement that developing nations’ oil and gas income will fall by 50% to 85% this year to a more than two-decade low if current market conditions persist. The statement from IEA Director, Fatih Birol, and OPEC Secretary-General, Mohammad Barkindo, said this is likely to have “major social and economic consequences”, notable for public sector spending in areas like healthcare and educations.
Goldman Sachs Equity Research said, “in the near-term, we believe that oil prices will likely need to move lower towards cash costs.” Goldman Sachs sees the US economy contracting 5% in the second quarter after zero growth in the first, with the short downturn probably deemed a recession. The full-year GDP forecast was cut to 0.4% on predictions for growth of 3% and 4% in the final two quarters and strong gains in early 2021. Goldman Sachs also cut its price forecast for Brent crude oil to just $20 per barrels for the second quarter.
So far Russia and Saudi Arabia have been on an all-out price war. Discounting prices, going after each other’s customers at any price and, saying they will produce at record levels. This has helped push prices to low level the market has not seen in years. There are some news reports this morning that Russia maybe easing a bit. Report say that Russian Energy Minister, Alexander Novak, may be holding a conference call with all their nations oil companies to discuss production plans because of the market volatility. Maybe some cooler head will eventually prevail.
From a Bloomberg report: “The growing fear is that consumption, which averaged just over 100 million barrels a day in 2019, may contract by the most ever this year. That would quickly outstrip the loss of almost 1 million barrels per day in 2009 and even surpass the 2.65 million barrels registered in 1980 when the world economy crash after the second oil crisis.”
Saudi Aramco’s Chief Financial Officer, Khalid al-Dabbagh, said the company can sustain a low break even oil price. He said Saudi Aramco was “very comfortable” with $30 per barrel oil price and that it can meet its dividends commitments and shareholder expectations even with current low oil prices. He said the company has “massive capacity” to borrow but does not need additional debt. Meanwhile, Saudi Aramco’s CEO, Amin Nasser, said the company is likely to sustain higher oil output planned for April and May, signaling it is prepared to live with low oil prices for a while. He said the company would draw 300,000 bpd from its oil inventories to reach that record supply next month, and that it can sustain its maximum oil production capacity of 12 million bpd for a year with no need for further spending.