No End to International Oil Price War Is in Sight, Ex-Sinopec Chair Says
Qi Dezhi
DATE:  Apr 03 2020
/ SOURCE:  yicai
No End to International Oil Price War Is in Sight, Ex-Sinopec Chair Says No End to International Oil Price War Is in Sight, Ex-Sinopec Chair Says

(Yicai Global) April 3 -- The oil price war Saudi Arabia and Russia are waging that has precipitated a plunge in oil prices amid the global spread of the Covid-19 pandemic will rage indefinitely,  predicted Fu Chengyu, the former chairman of China Petroleum and Chemical and general manager of China National Offshore Oil Corporation.

He made the above comments yesterday in an online public lecture hosted by China Yangtze River Business School where he is currently a professor.

This price war will not only last for one or two days but will be a relatively drawn-out affair that will persist until new changes occur in the pattern of the international oil market, Fu said.

"In the long run, if the dollar falls, international oil prices will rise accordingly, but a price range of USD50-60 should be relatively normal, no matter how high it is it is not sustainable," he added.

Changes in the structure of the international oil industry and market supply and demand, the game of big powers and geopolitics, the separate calculations of Saudi Arabia and Russia, and the direct trigger of a sharp drop in demand because of the pandemic are the four main forces driving the recent oil price war, in his view.

Requiring US shale oil companies to join the OPEC and Russian production reduction alliance should be one of the basic goals of the Saudi-Russia oil price war, he explained.

Frackers Racked

The cost of shale oil production is relatively high. Once oil prices fall, however, the economic pressure on shale oil producers will bear ever greater. If international oil prices stay at their current low level of around USD20 per barrel, the biggest damage will undoubtedly accrue to US shale oil producers, Fu predicted.

The swift rise of US shale oil output in recent years has changed the supply structure of the international crude oil market, which has caused the US to transform from a crude oil importer to an exporter. This is the reason underlying declining oil prices. "The shift of the international petroleum production center to the Atlantic has changed the global oil supply and demand balance, and oversupply has thus become the norm," he noted.

From 2008 to 2018, 48 percent of the world 's new oil production was US shale oil, 35 percent came from OPEC, and only 10 percent came from Russia, per statistics from the International Energy Agency. The US was first in world crude oil production last year at 18 percent, much higher than Saudi Arabia's 13 percent and Russia's 12 percent share.

"The WTI [West Texas intermediate] oil price is around USD20, which should be considered a relatively low price. Though it may fall below USD20 in the future, it will not stay below it for long," Fu said, adding, "Therefore, for consumption and investors, USD20 is a good buying price."

If the global pandemic is well controlled, oil prices may rebound to between USD25-30, and may stay there for nearly half a year, he predicted. After the global economic and social recovery is complete, oil prices will climb to between USD30 and USD40, Fu continued.

Editor: Ben Armour

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Keywords:   Crude Price,Supply and Demand,Oil Price,Novel Coronavirus Pneumonia