'Dripping' Oil Prices... Rising Fears of Collapse in the Petroleum Industry

[Asia Economy Reporter Naju-seok] Despite the largest production cut agreement in history, oil prices have been declining for several consecutive days for the first time in over a decade, raising concerns that the entire oil-related industry could collapse.

According to Bloomberg News on the 19th (local time), Singapore-based Hin Leong Trading, one of Asia's largest crude oil brokers, recently revealed losses of approximately $800 million (about 970 billion KRW) during futures trading. Hin Leong reportedly filed for bankruptcy protection after failing to repay debts to banks and other creditors, and in the process, sold off crude oil that had been pledged as collateral to banks. This has led to forecasts that the banks involved in the transactions may also suffer losses.

Bloomberg explained, "The collapse of Hin Leong demonstrates how significant the shock of falling oil prices is to the market."

The decline in crude oil prices is increasingly fueling a domino effect of collapse across related industries. OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) and allied non-member countries) agreed to cut daily crude oil production by 9.7 million barrels starting next month, but storage facilities are already full. Given the concerns over supply-demand imbalance, trading activity remains sluggish.

Bloomberg reported, "In some oil fields in Texas, USA, prices have fallen below $2 per barrel," adding, "There is even speculation that oil producers might pay premiums to offload inventory."

The Chicago Mercantile Exchange (CME) recently began preparing for negative pricing in futures and options related to crude oil. According to the Wall Street Journal (WSJ), CME has installed new software and systems in anticipation of energy-related financial products entering negative price territory.

Experts expect that the shortage of storage space caused by market oversupply will not be resolved until at least mid-next month.

However, signs that the market situation will remain challenging are emerging in various places. Saudi Arabia's state-owned oil company Aramco has reportedly lowered crude oil prices for exports to Asia for the second consecutive month. While Aramco has maintained or slightly increased prices for shipments to the US and Europe, it has reduced prices for exports to Asia. Analysts interpret this as Saudi Arabia making a decision mindful of market share.

Bloomberg explained, "This shows Saudi Arabia's strong willingness to engage in a market share battle."

Saudi Arabia plans to export an average of 4 million barrels of crude oil per day to Asia next month, down 2 million barrels from the previous 6 million barrels. However, Saudi Arabia announced it will reduce the proportion of lower-priced heavy crude oil and increase sales of relatively higher-priced light crude oil.

As concerns over oversupply grow, discussions about production cuts within the United States are also gaining momentum. According to the Wall Street Journal (WSJ), US energy company ConocoPhillips announced it will cut crude oil production by 225,000 barrels per day starting next month. Additionally, the Texas Railroad Commission, which regulates crude oil production in Texas, is also expected to consider production cuts.

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