OIL UNDER $ 40 IS UNSUSTAINABLE IN THE LONG RUN FOR RUSSIA AND SAUDI ARABIA, IBP POINTS

APR 9, 2020

Today , the Organization of Petroleum Exporting Countries (OPEC) and Russia will hold a virtual conference to try to reach a new agreement on cutting production. The agreement between the sides seems to be imperative and a new study published by the Brazilian Petroleum Institute (IBP) reinforces this thesis. The document highlights that both Russia and Saudi Arabia (which leads OPEC) depend on the oil sector to ensure the fiscal balance of their economies.

Therefore, both countries must again try to find a consensus, since the current levels of the price of a barrel, below US $ 40, will be unsustainable in the long run. Yesterday, the Brent barrel closed the day at around $ 33.62, while the WTI had a price of around $ 26.30. But the scenario of oil devaluation is not just a headache for Arabs and Russians. The IBP study also indicates that low prices also make it difficult for large shale plays in the United States, which “are not viable if the price of oil remains below US $ 40 per barrel for a long period”.

The IBP used projections made by financial institutions to try to make a forecast of how the Brent barrel price will be this year and next. According to the survey, in 2020 the value of the product may vary between US $ 20 and US $ 43. In 2021, the recovery would continue to be slow, with the price of the barrel being between US $ 44 and US $ 55, still far from average of $ 64 that was recorded in 2019. The institute also stressed that demand for the input will be less due to the Covid-19 outbreak.

“In this scenario, the International Energy Agency (IEA) expects a decline of 90,000 barrels / day in global oil demand for 2020, compared to 2019. If confirmed, this result would represent the first drop in variation demand since 2009 ”, recalled the IBP study.

For Brazil, the institute says that the weakening of China’s growth also directly impacts the Brazilian oil market. It is estimated that the Asian country has been buying 10% less oil and oil products in February compared to data from 2018. As is well known, China is the main destination for Brazilian crude oil exports. “The International Energy Agency estimates that Chinese demand for oil is 1.8 million barrels per day lower than in 2019 in the first four-month period of 2020”, highlighted the IBP study.

Source: PetroNoticias

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