Oil prices in Asian trade rebounded after hitting an 18-year low yesterday, when the price briefly dipped below US$ 20 a barrel.
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US benchmark West Texas Intermediate (WTI) jumped 7.3 per cent to US$ 21.5 a barrel while Brent crude was up 3.3 per cent at US$ 23.5 a barrel.
The drop in oil prices makes any agreement among producers difficult, after Russia and Saudi Arabia ended their collaboration amid rising tensions and direct confrontation.
The demand for crude, which until recently exceeded 100 million barrels per day, has dropped by at least a quarter.
Analysts and industry experts say that not even the economic crisis of 1929 had brought about such a slump in demand.
The White House has sought talks with the Kremlin scheduling meetings for their top ministers. However, cuts will be inevitable and some major Mideast oil producers, including Iran, Iraq, and Saudi Arabia, could pay the heaviest price.
As it takes on Russia (non-OPEC member), Saudi Arabia yesterday announced plans to boost exports by 600,000 barrels per day, for a record total of 10.6 million by May.
Saudi Arabia is the world’s top exporter of crude oil and had planned to boost April exports by 3.6 million barrels, with prices dropping further.
Meanwhile, Iraq, OPEC’s second largest producer, has started selling crude oil at around US$ 20 a barrel and plans to speak with multinational oil companies about payments and contracts.
About 70 per cent of Iraq’s exports go to Asia, but the low prices and the blockade caused by the pandemic will be economically devastating for a country torn by years of war and sectarian violence.
To deal with the crisis, state-owned Basrah Oil Co has asked four oil multinational operating in the country to cut investments by 30 per cent and defer payments to subcontractors.
For Iraq it is vital to reach an agreement so that payments will not be a burden on the government’s limited resources, while ensuring that operations continue.
Iran, one of the countries most affected by the coronavirus epidemic, was already reeling from US sanctions before the outbreak.
Washington’s sanctions are making it harder for Tehran to sell its oil. Since January Iran’s crude oil exports to China have dropped to less than 220,000 barrels per day.
Nevertheless, Tehran wants to strengthen the partnership with China and Russia whilst waiting to see where prices go. Doubts remain and if current prices persist oil producers could lose 50 to 85 per cent of their oil revenues.
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