The rises and falls of the barrel do not affect all countries equally, while some will benefit for others the volatility of the market will be a catastrophe

Who wins and who loses with the collapse of oil

photo_camera PHOTO/JACOB FORD/ODESSA AMERICAN via AP - Oil rig in Midland, Texas

No one could believe it when it happened. Many investors had never been in a situation like this before and didn't think they would live through it. The main WTI futures trading venue, Chicago, authorized the negative sale on Tuesday. Each buyer of a WTI took 37 dollars instead of paying. The price fell 305% from the last closing of the trading session. This was the biggest drop in recent weeks, but not the only one. Oil has been fluctuating strongly on all the world's stock markets for weeks. In some countries, these ups and downs will be a real catastrophe, but for others it is bringing about a very significant reduction in costs. On Wednesday morning it was the Brent that was plummeting at 1999 prices. 

Throughout the week, the price of the WTI barrel has recovered, but its cost remains close to $16 and the Brent barrel barely manages to go above $20. The latest statistics confirm that the International Energy Agency predicted in mid-April that oil was facing the "worst year in its history". The agency was also skeptical of the artificial cutback by OPEC+, the organization of exporting countries, and Russia, of 10 million barrels a day in May and June, and warned that it was not enough to contain the collapse in demand that oil is suffering.  

The reduction in demand is historic, at around 30%, according to the International Energy Agency. Added to this collapse has been the confrontation between Russia and Saudi Arabia, which announced publicly its intention to flood the oil market just as demand plummeted. The agreement to end the oil fluctuations they achieved on 12 April doesn't seem to be enough, as market prices don't seem to be stabilizing.

OPEP

"The market situation right now is very complex. Two scenarios have occurred at the same time that are lethal. On the one hand, demand is collapsing with the closure of a large part of production activity and, on the other, overproduction is making it very difficult to store what is not being consumed", explains to Atalayar Daniel Bianchi, general manager of the Euro-funding consultancy. 

The storage tanks in the United States are at their limit and cannot sell because there is not enough demand. "They're very expensive to export and they've run out of capacity. They have come to use oil tankers as a loading platform," the expert explains. The Brent producers are not yet in this situation, but Bianchi believes they will also have to face the lack of storage capacity soon.  

As long as the demand for oil doesn't return, and it is uncertain when economic activity will recover and under what conditions, production problems will not be solved. "OPEC+ has come late this time and it has taken a long time to reach an agreement, although it is not easy to cut oil production from one day to the next either," the consultant says. 

Tanque de almacenamiento

Negative prices are ruining the sector in the United States, have brought the oil sector to the brink of collapse and threaten a wave of bankruptcies for smaller energy companies. Donald Trump, the president of the United States, held meetings a few weeks ago with Texas producers to find solutions to a desperate situation.  

The president has gone so far as to promise aid to the oil companies. "We will never let the U.S. oil and gas industry down. I have instructed the secretary general of Energy and the secretary general of the Treasury to formulate a plan that will ensure funding for these important companies and jobs are secured in the future," he wrote on his personal Twitter account. 

Market uncertainty and volatility also threaten those countries most dependent on oil exports, such as Ecuador or Venezuela. "For Venezuela the impact is going to be brutal. Mexico has managed to diversify its economy and is not going to feel such an abrupt blow," says Bianchi. To give an example, Algeria had set its austerity budget to face the pandemic with the oil barrel at 50 dollars, as reported this week by the newspaper Liberté.

Refinería Arabia Saudí

Meanwhile, Saudi Arabia will be able to cope with low prices for the time being, according to a report by the International Institute of Finance (IIF). Despite this, the document points out that for the kingdom to balance its budget in 2020 it would need barrel prices to be around 77 dollars. Therefore, analysts predict a deficit of 14% of GDP for this year, which can be compensated by the low public debt that the country registers (barely 30%).  

In contrast, the countries that benefit most are oil consumers. "China is one of the big importers and is accumulating all the oil it can by taking advantage of the price collapse," the analyst says. South Korea or India are also following this strategy.  

Spain is also one of the countries that is benefiting from the fall in prices, especially in those sectors that are still operating, such as logistics or transport. "Cost reduction is being important and will probably help some companies to get through this economic crisis," explains Bianchi. But everything has a B-side and the expert warns that the lack of demand for products such as gasoline can mean a very important hole in the public finance accounts. "Taxes in Europe are very high for this type of product and it will be noticed in the tax collection," he says. 

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