Real winners and losers of oil price crash
Many oil producing countries will lose huge revenues
One can
wonder that how there be losers and winners when oil prices crashed. Even when
the oil prices are historic low and some oil companies facing the possibility
of bankruptcy but there still are winners in this situation. Generally -it is believed that oil producing countries are the real losers when the oil prices plunges. And the big consumers of oil are the real winners. Lower oil prices helped the biggest consumers of oil to reduce the import bill. But it seems that the situation is different this time around.
The
lockdowns and travel restrictions imposed by different countries have decreased
the use of fossil fuel. Very few people are traveling and using their cars and other
vehicles. The coronavirus outbreak in Europe and North America has severely
impacted the economic activity and production.
In this
unprecedented global oil glut, some sectors of the oil industry and some
oil-producing countries and their national oil companies (NOCs) are set to fare
better than others-some energy policy experts believe. Like in every extreme market situation, there
will be big winners and big losers while the oil industry is scrambling to
stash crude oil and refinery products that no one really needs right now.
The real
losers
The real
losers in this situation would be the large oil producing countries with lower
storage capacity. They will be forced to sell oil at the lowest prices or to
stop the production of oil. The real winners would be the countries and
companies with big storage capacity. They will buy the cheap oil and then store
it to sale in the future when prices will go up.
Renowned
energy writer TSVETANA PARASKOVA wrote in oil price .com that The OPEC producers who don’t have
adequate refining capacity at home and don’t have solid long-term oil supply
contracts with oil-importing nations are set to lose the most. These are
Angola, Nigeria, and Iraq. OPEC’s second-largest oil producer Iraq sells most
of the crude it produces.
Venezuela
will be another loser in this situation as it will lose revenues from oil. The
low prices will not bring enough money for Maduro government to steady its
ships.
To be sure, Saudi Arabia
The
countries that have long-term oil supply contracts with importers will be
better off than those who rely more on spot crude sales. Data about the global
spot crude market is incomplete. But oil-producing nations with higher shares of
spot sales would likely feel the pinch from the storage capacity crunch much
harder than others because amid the huge oversupply refiners are even trying to
get out of some clauses in long-term contracts, let alone snap up spot cargoes.
Refined
product distributors will lose the most—people are not driving and are under
lockdown in many countries in the world, including in India and the largest oil
consumer, the United States.
Biggest
winners
The owners
of super tankers and big storage capacity are the real winners. The biggest winners in the current market
situation are the owners of storage capacity—onshore and offshore. Storage has
been the most sought-after ‘commodity’ in the energy market in the past month
as demand was crashing, and supply was rising.
Offshore,
traders are scrambling to book floating storage, and charter rates
for supertankers are skyrocketing. Storage costs are rising, and so are
costs for chartering tankers to store oil at sea for future sales when traders
expect demand to recover from the pandemic-hit plunge.
CHINA
benefits from lower oil prices as a major importer, but this time it may take a
while for the effects to materialize: It already has high stockpiles of oil and
liquid natural gas, while the coronavirus is hindering travel and manufacturing
and creating uncertainty.
Under those circumstances, excessive volatility in the markets may hinder China’s economic recovery, as it needs stability across the globe to prevent further shocks to supply chains. Those concerns were on full display.
The dramatic fall in oil prices also could have political consequences for friendly countries ranging from Iran to Venezuela -- a headache Beijing doesn’t need.
Under those circumstances, excessive volatility in the markets may hinder China’s economic recovery, as it needs stability across the globe to prevent further shocks to supply chains. Those concerns were on full display.
The dramatic fall in oil prices also could have political consequences for friendly countries ranging from Iran to Venezuela -- a headache Beijing doesn’t need.
INDIA, the
world’s third largest crude consumer, should be among the big beneficiaries
since its import bill will fall significantly. Cheaper oil could also help
Prime Minister Narendra Modi’s government by allowing it to increase taxes on
fuels, rather than pass the entire benefit of the price decline to consumers.
This couldn’t come at a better time for Modi, whose government is under
pressure over slowing growth and the biggest bank failure in India’s history.
Lower oil
prices are also generally good for resource-poor JAPAN, with cheaper gas
helping consumers hit by a crisis of confidence over the coronavirus and a
damaging sales-tax hike. It means lower costs for businesses as well,
potentially supporting profits through a looming downturn.
It is generally believed that low oil prices hurt the oil producing countries as they depend on oil exports to generate much needed revenues. Their economies suffered and they face financial crunch when oil prices fell beyond a certain point. Now the oil prices have gone below the $0 per barrel in US. The oil prices have fallen to lowest levels never seen before.
It is generally believed that low oil prices hurt the oil producing countries as they depend on oil exports to generate much needed revenues. Their economies suffered and they face financial crunch when oil prices fell beyond a certain point. Now the oil prices have gone below the $0 per barrel in US. The oil prices have fallen to lowest levels never seen before.
If the
prices of fossil fuel remain at lowest levels for longer than the economies of
Iraq-Russia-Saudi Arabia and other oil producing countries will be hit hard.
They will lose precious petro dollars.
The two factors
have mainly contributed to crash of oil prices. One is the lockdowns because of
coronavirus reduced the consumption and thus the demand. The second is price
war- major oil producers pumped more oil in the market that created oversupply.
When big oil producers realised the situation and decided to cut back the
supply it was too late. OPEC and its Russia-led allies promised to remove
9.7 million bpd from the market starting in May.
Khalid Bhatti
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