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Prices for Russian oil went minus. What will the manufacturers do?

In mid-March, the Japanese Bank Mizuho predicted that due to the growth of production in Saudi Arabia, oil prices can reach a negative value. In this case, manufacturers will have to pay extra to customers to free the storage facilities. Is such a scenario realistic? The precedents with the drop in oil value were already below zero.

Moreover, from this Monday, the export of Russian oil has become unprofitable due to the fall in the cost of Urals to the values ​​unprecedented since 1998: $ 13–16 per barrel. The cost of Russian oil, taking into account transportation and taxes at the current dollar exchange rate, exceeded the price at which our oil is ready to buy. The situation can straighten the additional ruble devaluation, and in the most extreme case, the administrative coercion of the state “transneft” to deliver oil at reduced prices.

The coronavirus epidemic caused a giant, unprecedented in the history of the oil market, the decline in demand, which became a derivative of the temporary compression of economies and restrictions on the movement of the population and goods.

The time of the advent of negative prices for the reference varieties of oil can be calculated, but it is very approximately calculated. It is not known exactly how filled the Saudi oil storage facilities (profile specialists have no faith). On the other hand, the United States has the opportunity very quickly, in operational mode to increase oil storage facilities.

Again, it should be understood that although the general global oil market exists, regional conditions are significantly vary. There may be a situation where in Canada, oil prices are negative, and in neighboring USA - not. But in itself, the fact of the presence in some large market of the negative cost of oil will put pressure on global quotes towards the decrease.

Today, oil storage facilities with a capacity of about 1.7–1.8 billion barrels remain incomplete. We calculate the worst version of the development of an event in which:

• OPEC maximally increases prey, increasing the supply by 5 million b/d;

• World oil demand is reduced by 25 % and lasts at this level for a long time (which is unlikely to be in reality).

At the same time, we remember that before the epidemic in the oil market there was an excess of 1 to 2 million b/d. Since we calculate the worst option, suppose there were 2 million.

In total, we have a simple formula:
1.7 billion barrels per day / (5 MBD + 25 MBD + 2 MBD) = 53 days.

If global oil demand falls by only 20 %, then the storage facilities will be overwhelmed after 63 days, if even less, say, 15 %, then we are already talking about 77 days. But if demand falls by 30 %, then storage tanks will be overflowing after a month and a half, by mid -May.

After which we are waiting for a convulsive collapse of oil production, which is not easy technically. Preservation of wells, as well as their subsequent re -conservation, costs a lot of money. Producers with the highest costs should leave the market then. Or, realizing that before the restoration of demand, as they say, is a stone's throw, they will work at a loss.

With such a huge, albeit short-term, excess supply, the cost of oil can really get closer to zero-there is nowhere to store this excess.

Moreover, the same United States will try to protect its manufacturer, and in the arsenal they have quite a lot of measures - in the end, the Democrats will agree to emergency oil purchase in state oil storage facilities, having rushed concessions from the Republicans in other areas for this. And they, as mentioned above, have the possibility of rapidly increasing the capacities of oil storage in quick -collection temporary storage facilities.

In Russia, the problem is that, according to the Bloomberg agency, we have the smallest free oil capacities from the three largest oil producers in the world, and they will be enough for about a week - though that our entire oil production will be stored. Again, it was precisely our key markets for sales that the Saudi Arabia strike was aimed at the OPEC+ price war that unfolded after the collapse of the transaction.

For understanding, we give an absolutely conditional financial model that will force oil producers to sell oil even at negative prices. The main thing in it is the understanding that it is necessary to hold out for a very short time, for one or two months, and there the restoration of the world economy will extend the demand for oil.

Suppose we have a company with just one well that mines 30 thousand barrels per month. By the way, there are really many of them in the USA. Donalogy operating cost of oil production (all costs for launching the well have already been incurred and only current ones remained: salary, cost of consumables, repair, etc.) It has $ 20 per barrel.

The cost of preservation of the well is $ 1 million. Realuations - the same amount. Total - $ 2 million costs to resume production and half of this amount, if the company decided to close. Thus, at the sale of oil shipped by customers, minus one center monthly loss from the activities of our conditional company will be $ 600 thousand.

That is, it is cheaper to incur losses for three months, in fact, giving customers produced oil, than to resume production later, spending $ 2 million on it.

In addition, oil manufacturers very much hoped that the anti -crisis emission unprecedented in world history from central banks and actually zero loan rates, being multiplied by the restoration of the global economy after the pandemic, will quickly extend the cost of oil to the values ​​acceptable for them.

If you look at the question realistic, then the OPEC will not immediately reach the maximum declared production, and in the same USA and Canada, where the cost of oil production is higher than that of Saudi Arabia, a reduction in production will begin - but it will also begin, alas, not tomorrow.

The United States will sit on quarantine throughout April, but even in case of extending, taking into account Chinese experience, somewhere in June they should begin to leave it. The same thing with Europe, and it, on the principle of “you will sit down before - you will come out,” must go towards the exit even earlier than the United States.

And somewhere in the middle of summer, when China has already left the quarantine, Europe has practically left, and the United States also somewhere at the end of the process, a reduction in oil production in the USA significant for the market should begin. In Canada, this will happen a little earlier due to the high cost of oil production from bituminous sands, on the one hand, and super-low prices for Canadian oil-now its individual varieties are sold for $ 4 dollars per barrel-on the other.

That is, if the decline in oil demand does not exceed 25, oil storage facilities will be crowded just when a powerful restoration growth of the global economy begins, which will drag a relatively rapid restoration of oil demand.

Regarding - because for a long time, from half a year to two years (this is already a matter of psychology), a significant part of the population will minimize airfields, and this is 7 % of world demand for oil, will abandon sea and ocean cruises, travel and trips, inhibiting the restoration of the demand for ship fuel and gasoline.

But! Everything written above is true only if:

• In 2020, the second global wave of the coronavirus epidemic will not happen;

• The recovery postpidemic growth of the world economy will “absorb” the cyclic crisis of the global economy that began in the second half of last year.

And one more point. A completely different thing with oil products, where, for example, in the case of aircraft fuel, the storage facilities are filled by 80 %, and the demand fell in half and continues to fall. Here, even stopping the production of airline is not a fact that the situation will help. Although, on the other hand, the European refinery rises for planned repairs, and the production of airline will be reduced by itself.