Not in my wildest dreams did I imagine a slice of pizza would cost more than a barrel given the situation that unfolded in the last 24 hours.
So, how did we end up with negative oil prices today? Clearly, last week’s historic OPEC+ agreement was not enough to salvage prices from hitting rock bottom.
Storage capacity is filling up fast offshore and in-land. Currently, there's more crude oil than anyone can use. Let alone how we're going to use it, but also, where are we going to store it until lockdowns are eased?
Earlier last week, during the OPEC+ meeting, which includes Russia, it was agreed to cut production in May and June by 9.7 million barrels a day to help prop up prices. The cuts will then be eased gradually until April 2022. If only had they reached that agreement much earlier and not lingered in murky waters this long - maybe, just maybe – we could have been in a better situation.
We may have to wait and watch how the OPEC+ agreement takes effect and impacts the market next month. If it doesn’t help, oil producers will have to re-convene and cut production output by a greater scale than what they called 'historic' a few days ago.
To sum up, oil producers need to put their heads together and open the doors to innovative approaches in the race against time. We need to focus on survival rather than competing in choppy waters. That being said, producers would still need a helping hand from worldwide restrictions as they ease, at least that will help get rid of some of the excess storage and supply. Elsewhere, stock market traders will have their eyes glued to see if we're going to sink further or bounce back in three to four months when the rate of infections decrease.
Here at the Gulf Downstream Association, we facilitate discussions between oil producers, downstream companies, government and education bodies by advocating regulations and collaborating in times likes these.
Let's hope to ride this wave, remaining cautious and hope that OPEC leads the way and mitigates this situation sensibly, in what seems to be a life-altering moment in history.
Pamela Nazareth I 21 April 2020
About the Organizer: Gulf Downstream Association
The Gulf Downstream Association (GDA) was established by its Founding Companies Saudi Aramco, Kuwait Petroleum International (KPI), Bahrain Petroleum Company (BAPCO), Kuwait National Petroleum Company (KNPC) and Abu Dhabi National Oil Company (ADNOC). GDA is a pioneering, non-profit association and “point of reference” for all downstream players including industry professionals, corporate executives and legislators seeking to foster excellence and drive advancement through mutually beneficial engagement and industry collaboration. Read more here