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Iranian Minister of Petroleum Bijan Zangeneh described the recent drop in oil prices as unprecedented, and said, Resolving crude oil issues need global support, and producers must work together in order to survive, especially producers who produce more expensive crude.
Speaking to reporters on the sidelines of a cabinet meeting on Wednesday, Mr. Zangeneh said one of the main reasons for the fall in oil prices was the outbreak of the coronavirus.
The coronavirus outbreak has swept across the globe, bringing to a halt consumption of petroleum products dramatically and forcing much of the world aerial industries as well as travel and trade into lockdown. Under these conditions, refineries have slashed their output and demand for crude oil has fallen sharply, he said.
He said the Organization of Petroleum Exporting Countries’ (OPEC) initial estimate of a supply glut in the first quarter of 2020 was 3 million barrels per day, adding that the estimate at the recent OPEC meeting in April shot up to 11 million barrels. The oil market is predicted to face a supply glut of 14 million barrels in the second quarter of the current year.
Attributing the supply glut in the market to the COVID-19 outbreak in the world, he said: Unfortunately, in March, we witnessed the outbreak of a price war by some countries. Their battle cry was to drive up oil supply in the market, which exacerbated the crisis in the oil market and deepened it.
Output Cuts Not Enough
Zangeneh said that the oil inventories were filled up with the excess oil that entered the market which has to be picked up anyway. OPEC and non-OPEC countries agreed in their April 15 call to cut their total output by 10 mbd.
He noted that if the output cut agreement was fully implemented by May 1, calm would smoothly be restored in the oil market. What is important is that the market has not grasped the amount of oil output reduction (about 10 million barrels per day) as sufficient to address the market conditions, state of reserves and demand conditions as well as the uncertainties caused by the coronavirus crisis.
The Iranian Minister of Petroleum said that the price of Brent crude oil benchmark fell to below $20 a barrel and the OPEC oil basket reached $14.50 on Tuesday which were not seen in the market for years. This shows the depth of the problems that need to be addressed quickly and with new reductions.
He attributed success in this regard to non-OPEC producers, especially to producers who have not yet made any commitments, such as shale oil producers in the United States and Canada, sayiny this is a general crisis and must be managed globally. So, OPEC alone cannot solve this problem, and if not all oil producers are involved, the market will punish those who have failed to cooperate.
Zangeneh pointed to oil companies shut down in the United States and Canada, saying, Just as the whole world must work together to deal with the coronavirus, solving the oil problem requires global cooperation, and producers must work together in order to survive, especially producers who producer more expensive crude oil.
