Oil industry being pulled in both directions

With a situation where ‘demand is down and supply is up’, oil industry prices continue to suffer in what can only be described as ‘Mad March’.

While the coronavirus pandemic continues to tighten its grip on society leading to a cut in fuel consumption as the global economy slows down, disputes between Saudi Arabia and their rivals has seen the top oil-producing country raise output to full capacity.

Slashed prices

Saudi Arabia slashed export prices and said it would pump at a record of 12.3 million barrels per day, flooding the market with oil that it didn’t need. By contrast, producers in the USA’s top producing state, Texas, have asked for regulatory intervention to reduce production.

International crude oil prices LCOc1 CLc1 have dropped about 45% this month and don’t even cover the cost of much of the world’s production, causing energy companies worldwide to drastically rein in their spending. March 9th witnessed the biggest single-day drop of 24%.

The collapse in demand and a diplomatic impasse between Saudi Arabia, Russia and others have triggered unprecedented responses from governments and investors.

As Reuters reports, it is an industry in distress.

With business energy prices fluctuating wildly, knowing when to strike a deal with suppliers has become an art in itself.

Smart energy procurement is one of the main ways in which companies can save money and our expert knowledge and ability to keep track of the markets in these most volatile of times, makes us very well placed to take care of that side of your business.

If you would like to have a conversation with one of our team of consultants, please give us a call on 01225-867722 or visit our dedicated energy procurement page.

Boris Johnson: Iran to blame for oil price surge

energy price

Energy Management’s Hannah Robinson takes a look at the latest geopolitical incident to cause an oil price surge.

Background – what happened

On the 14th September 2019, Saudi Arabia was hit by missile attacks on two oil facilities. The attacks were carried out by 18 drones and seven cruise missiles travelling 500km undetected, which proceeded to hit the oil field and processing facility.

The attack caused large fires at the refineries, which according to the Saudi Arabian interior ministry were put out several hours later. The attacks wiped out 5 per cent of the world’s oil supply.

Billions of dollars had been spent on protecting Saudi Arabia against such attacks, including buying in defence systems from the United States, but to no avail on this occasion.

Boris Johnson’s opinion

Prime Minister Johnson agreed with Saudi Arabia in stating that he thought there was a ‘high degree of probability’ that Iran was behind the attacks on the two oil facilities. Johnson also refused to rule out military intervention and stated sanctions may also be a possibility.

“I can tell you that the UK is attributing responsibility with a very high degree of probability to Iran for the Aramco attacks,” he commented. Mr Johnson said he will work with the US and European countries to give a response in an attempt to minimise building tensions.

Mr Johnson is due to meet with presidents from France, Germany and the US to discuss the attacks as well as Brexit, with himself and Trump agreeing there is a need for a united, diplomatic response in regard to Saudi Arabia.

Effect on oil prices

The oil price surge is almost 20 per cent due to the 5.7 million barrels of oil being taken from the supply chain. This is the largest spike since 1988. The price is still below that of last October ($85 dollars a barrel), but by the end of the day of the attack, prices had increased by 14.7%.

Saudi Arabia believes they can get oil production up and running again in a matter of weeks, however, if this doesn’t happen, we could be looking prices hitting the levels of 12 months ago – or higher.

Oil market analysts claim prices could surge towards $100 a barrel in the next few weeks if tensions in the Middle East continue due to renewed disruption in the Strait of Hormuz, a key transit route for the world’s oil tankers.

Source: BBC News – 2019