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They say, this is also because of COVID-19

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I have not pumped fuel from before the Movement Control Order (MCO) until today. I have driven one car out for grocery shopping a few times and the only thing I needed to pump was air… Needed to ensure the tyres are inflated properly. So, I have not enjoyed the low fuel prices which has been happening during the MCO period. Not even once. What about you guys? Managed to somehow pumped in and enjoy savings of a pack of instant noodle per tank?

You must have read somewhere, somehow and someone would have alerted you. Oil price is now so low that it’s unbelievable. More about that shortly. These days, anything which is not doing so well, it must be due to the COVID-19 pandemic. There were some hotels said to be closing due to COVID-19. Property prices are also said to be falling because of COVID-19. Article here: Housing prices expected to fall 10-15% because of COVID-19 Okay, back to the price of oil.

Article in cnbc.com The article says that the price for May contract for West Texas Intermediate crude futures dropped to US$14.80 per barrel. (approximately 159 litres) This is the lowest level since mid-March 1999. (Yes, that’s over 20 years ago.) Two reasons were mentioned for the current price.  ANZ’s Daniel Hynes said, “This was caused by a combination of a “collapse in demand and a subsequent lack of storage.”

The article pointed out that the coronavirus has stopped economic activities and this reduced the demand for energy. OPEC and its oil producing allies did agree to cut production by 9.7 million barrels per day but this may not be enough to offset a severe plunge in oil demand. Demand is also near-paralysis while oil and fuel tanks around the world are close to brimming (means nearly no more storage space). Please do read the full article here: Article in cnbc.com

For some of us, we may not know this but the U.S. is the world’s largest oil producer yeah. They are followed by Russia and then only followed by 3rd ranked Saudi Arabia. The U.S oil production is due to shale oil producers. “Shale oil extraction is an industrial process for unconventional oil production. This process converts kerogen in oil shale into shale oil by pyrolysis, hydrogenation, or thermal dissolution.” Briefly, the cost of production for shale oil is much higher than oil fields in Saudi Arabia for example. To breakeven, some estimates say that the oil price needs to be at least US$40 per barrel. (read here for the source)

As for the cost of production for oil fields in Saudi Arabia, let’s just say that they are not yet affected by the current low oil price. Here’s one such report. In other words, if the current oil price remains for a long time to come, the shale oil producers in the U.S. would not be able to continue their production. Still believe that the oil price is solely due to COVID-19? Do remember yeah, the oil storage is already near brimming… In other words, the more production of oil, the lower the prices would become because storage is running low even if buyers want to buy and keep them and only selling when prices recover. Happy understanding.

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Next suggested article:  Property market still in upbeat mood?

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