Saudi Production Increase Approaching... Concerns Over Single-Digit Plunge in International Oil Prices

[Image source=AP Yonhap News]

[Asia Economy reporters Hyunwoo Lee and Jaehee Kwon] As April, when Saudi Arabia warned it would begin increasing crude oil production, approaches, the possibility of international oil prices falling to single digits cannot be ruled out. In some parts of the United States, gasoline prices are already reported to be below $10 per barrel.

On the 29th (local time), foreign media including Bloomberg reported the recent sharp decline in gasoline prices in the United States. In Kentucky, a gas station selling gasoline for 99 cents has appeared. This is about 1,200 won per gallon (3.78 liters), which translates to around 300 to 400 won per liter, indicating a steep drop. According to Gasbuddy, which compares average gasoline prices in the U.S., the average retail gasoline price in the fourth week of March was $1.99 per gallon, and it is expected to be $1.49 next week. This is the lowest level in 16 years since 2004.

Expectations that oil prices will fall further are gaining strength. First, Saudi Arabia, the leading member of the Organization of the Petroleum Exporting Countries (OPEC), is highly likely to push ahead with production increases starting early next month. The Saudi government previously stated it would not engage in additional negotiations with Russia and has maintained its production increase plans despite pressure from the United States. According to the schedule, Saudi Arabia plans to raise daily production to 12.3 million barrels, a 27% increase compared to February, starting early next month. The Associated Press quoted a Saudi energy official saying, "The energy ministers of Saudi Arabia and Russia have not been in contact and have not discussed crude oil market balance issues." Earlier, on the 25th, U.S. Secretary of State Mike Pompeo called Saudi Crown Prince Mohammed bin Salman to pressure him to halt production increases, but this also failed.

There is also a possibility that unsold oil amid plummeting demand will be released into the market at low prices. In fact, in the U.S. oil market, "negative oil prices," where sellers pay buyers to take oil, have appeared. Mercuria Energy Group, a U.S. commodity trading company, auctioned oil sands from Wyoming for -19 cents per barrel. With storage tanks full due to decreased demand and expectations that finding storage facilities will be difficult in the next two to three months, they chose to sell at a loss. Consequently, some oil companies are even planning to use ultra-large tanker fleets as floating storage units. Bloomberg reported that due to oversupply, even these tanker fleets are expected to be unavailable within less than a week.

Goldman Sachs forecasts that global crude oil demand will decrease by 18.7 million barrels per day in April alone. Considering that global crude oil demand before COVID-19 was about 100 million barrels per day, this represents a nearly 20% drop.

This content was produced with the assistance of AI translation services.