• COVID-19 spread triggers oil price war

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      Patrick Lavery

      Combustion Industry News Editor

The spread of COVID-19 coronavirus across the world has impacted global oil prices and the production policies of major producers. Last week, prices reached their lowest level for three years as demand for the fuel dropped because of reduced global economic activity – particularly in terms of aviation and other transport – and there is speculation that prices may fall to around US$30/barrel (or even lower), a level seen only once in the last 15 years. The drop in demand and prices forced discussions between Opec and Russia in regards to production cuts of around 4% in order to stabilise prices, but the talks collapsed, with Russia refusing to reduce production. In response, Saudi Arabia is now determined to raise production and offer discounted prices in a price war with other producers, including Russia and the US. This is the less optimal scenario for all producers, but Saudi Arabia will be hoping it is worse for other producers, weakening them in the long term. In what is being interpreted as a sign that it is a domestically contentious strategy, Crown Prince Mohammed bin Salman has moved to arrest several members of the royal family, which is presumed to be a political decision to quell opposition to the move. Restrictions on production will lift in April, and there are sure to be further ramifications to producers and their internal politics over the coming months. Some speculation is already present that a long period of low prices will force mergers within the oil and gas industry, while the head of the International Energy Agency, Fatih Birol, has said that the effects of the price war may mean that negatively affected producing countries will have fewer financial resources to battle the coronavirus.