The global oil disaster.. A comprehensive analysis of the oil price crisis and its consequences on Iraq

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The global oil disaster

A comprehensive analysis of the oil price crisis and its consequences on Iraq

Issam Al-Chalabi

Iraqi petroleum engineer and Former Iraqi Oil Minister

The beginning was when trading began in Asian markets where u.S. oil prices WTI began to gradually decline after several hours to $10 per barrel after trading started at $18.

WTI  is a globally approved signal  for the pricing of certain types of oil in the world, especially those destined for the Us market. Represents light oil (37-42 API (

With low sulphur content and impurities, it is produced in Texas, Louisiana and North Dakota.) was previously approved by Iraq for the pricing of its oil bound for the Americas before it was replaced by

American Sour Crude Index ASCI.).

Other signal oils such as Brent (North Sea), Dubai, Oman, Russia’s Urals and others.

When trading began in the NYSE stock market, prices continued to decline sharply, reaching $5 and then a few cents until the markets closed. It fell to a -37$  contract for May, while June, July and beyond continued to maintain their levels with a slight decline, although may contracts end at 2:30 p.m. this Tuesday and disappear from screens.

Negative means, the seller is willing to deliver oil to the buyer in addition to a sum of money to ensure the disposal of the oil produced for lack of storage and avoid the cost of storage as well as high-cost operation.

To explain what happened, it should be noted that:

  1. The crisis is exclusively about U.S oil WTI contracts only may and the interested should not be surprised when they sees today positive prices for that oil, which we believe will also be subject to a gradual decline because of remaining the same reasons that led to this crisis in the first place.
  2. The consumption of such oil is exclusively within The United States and is not exported abroad and its production facilities are linked to pipelines and reservoirs in oil refineries.
  3. Since the Coronavirus epidemic and the rates of consumption began – without exception – with a continuous decline, which has increased by decisions to prevent the movement of cars, planes, ships, the suspension of factories and others, which have led to the accumulation of oil stocks to record levels and the influence of storage capacities on land and in tankers, which have increased their wages to unprecedented levels.
  4. 4. Despite the above, as the consequences of the Corona epidemic intensified, production continued at high rates to reach maximum capacities, reaching the maximum capacity to reach nearly 30 million barrels per day (MBI) with ten times the amount in the treasury and with a decrease in the operational capacity of refineries to reduce demand for derivatives.

OPEC + (13 members + 10 non-members) failed to reach a decision on production cuts in early March, making matters worse.

  1. After a hard effort and pressure from the United States, OPEC decided to reduce production by 9.7 million barrels per day, but what was required should have been up to 25 million barrels per day. G20 countries have not committed to any actual reductions.

Add to that another big mistake, which is to postpone the start of the reductions until 1-5-2020 in the sense that the decision was issued on 12-4-2020

In addition, the price war continues and producers starting with Saudi Arabia give price discounts and other facilities.

This means that the OPEC+ decision, which Iraq contributed and supported, is strong (ministry of oil statement a few days ago) despite a reduction in Iraq’s share by 1,061 million barrels per day and a decline in its actual export volume to no more than 2.5 million barrels per day.

Considering the above and the near expiry of the May contracts, the near expiry of storage capacities and the lack of demand within America, prices have fallen as we have seen.

With the assurance that what he urged includes u.S. oil contracts and for May. Markets were closed as follows:

May contracts are $37 per barrel.

June contracts $21 per barrel

July contracts $27 per barrel

August contracts $29 per barrel

Given the continuing conditions, it is highly anticipated that prices will face similar pressures and may not be as severe as the return of some economic activities worldwide.

To answer another question:

Other oils such as Brent, Dubai and others were not under high pressure yesterday because their conditions are different and their markets are different and their activity (slowing down) continues

 

Another answer that concerns the reader concerning Iraqi oil and its impact:

 

– Iraqi oil for the Us market is about 15% of Iraqi exports, or about 450,000 barrels per day, and should drop next month, possibly to about 350,000 barrels per day.

The pricing of Iraqi oil sold to the Americas is not calculated on a price basis for the day of loading, but is based on the average of five aSCI releases compared to WTI 15 days after the actual loading day on board the tanker.

 

The extent to which Iraq’s expected oil revenues will be affected by the current reality of markets and prices and as a result of the commitment to the OPEC decision will be catastrophic for Iraq and in a way that many may not expect, and the deficit in Iraq’s budget for 2020 will be greater than what has happened since the founding of the Iraqi state, and we will address this in another area.

It is painful and surprising that the Iraqi authorities have not carried out any austerity and/or organizational measures, the continued extravagance and recklessness of paying salaries to the undeserving, the receipt of high amounts and allowances by Iraqi government officials, the receipt of others for more than one salary, etc.

 

 

In conclusion, I add two observations:

– The current situation is in the interest of oil-importing countries

– America is the first country in production and its exports exceeded its imports in 2019 and for the first time since 1952

– The price decline below $30 is not in the interest of Us shale oil (canada is currently selling some of its negative lysand oil!)

What happened yesterday will mean that many U.S. companies and small well owners will be able to close their facility and possibly declare bankruptcy.

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