According to recent news from Dow Jones, the global spread of the new crown epidemic has led to a sharp drop in oil demand and the dual impact of Saudi Arabia and Russia in an oil price war to grab market share and increase oil supply. International oil prices have plummeted. For some people relying on oil price revenue to support the economy and people's livelihood For the poor OPEC countries, it’s worse, and they are trying to cut expenditures in order to tide over this crisis.

Due to the lack of cash resources and the ability to increase production to respond to the oil price war, the governments of Iran, Iraq, Algeria, Libya, Angola, and Venezuela are considering drastically cutting expenditures in the face of the COVID-19 pandemic.

Helima Croft, chief commodity strategist at RBC Capital Markets, said: "For the most dangerous OPEC producers, the cost of this deadlock will be particularly high." Croft said these OPEC producers " It is faltering” because it faces not only the challenges of oil production, but also security threats and unsupportable national budgets.

Oil price war started, oil price plummeted

In March this year, the global benchmark Brent crude oil price plummeted 55% to US$22.76 per barrel. The reason was that Saudi Arabia, the world’s largest oil exporter, sharply lowered crude oil prices and said it would increase oil production in an attempt to seize the global oil market from Russia. Share. Saudi officials said that Saudi Arabia, the world's largest oil exporter, now produces more than 12 million barrels of crude oil a day, reaching its maximum production capacity, which is about 2 million barrels per day higher than a month ago. Prior to this, the three-year cooperation plan between Saudi Arabia and Russia broke down. Saudi Arabia's production cooperation plan with Russia is part of the "OPEC+" alliance. Iraq and Algeria have been trying to bring Saudi and Russian negotiators back to the negotiating table, but so far have failed.

According to the analysis of the International Energy Agency (IEA), in 2020, many OPEC member states will reduce their income from diene and diene gas by 50% to 85%, the lowest level in more than 20 years. The IEA said: "This may have major social and economic consequences, especially in key public areas such as health care and education, which are more susceptible."

Iraq: Oil prices above US$50 can be maintained

Iraq, which is currently preparing to host the OPEC 60th anniversary meeting in September, will become the biggest victim of the oil price war. Modher Mohammed Saleh, an economic adviser to the Iraqi Prime Minister’s Office, warned: “In Iraq, a country already suffering from conflicts and protests, the government is forced to cut expenditures due to the plunge in oil prices, which will bring imminent danger to the future of Iraq and Iraq. ."

In the oil market battle between Saudi Arabia and Russia, Iraq clearly lacks competitiveness. Saudi Arabia has the ability to increase oil production by 2.5 million barrels a day to compensate for the impact of falling oil prices, and Iraq cannot do this without the help of foreign companies. Russia's diversified economy and large cash reserves mean that Russia can cope with oil prices as low as US$25 per barrel. In contrast, Iraq needs more than $50 in oil prices to meet government spending needs.

According to the IEA, Iraq’s daily oil production can only increase by 310,000 barrels to 4.9 million barrels, which is equivalent to a small part of Saudi Arabia’s plan to increase supply, and with the outbreak of the new crown epidemic and the collapse of oil prices weakening production and investment, this increase in production will also There are doubts. In recent weeks, the Garaf Oilfield, which is located in southern Iraq, which is rich in oil resources, with a daily output of 100,000 barrels, has suspended production because its operator, Petronas, Petronas, has withdrawn its employees to Kuala Lumpur due to concerns about the new crown epidemic.

At the same time, in Iraqi Kurdistan, which accounts for one-fifth of Iraq’s oil production, restrictions on employee activities related to the new crown epidemic and the sharp drop in oil prices have caused production and drilling activities to cease. The Norwegian DNO company stated that it is reducing the output of the largest oil field in the Kurdistan region while reducing the number of drilling rigs deployed here from six to two.

Iraq is cutting oil spending. According to an Iraqi government consultant and a diene contractor, the Iraqi regulatory agency asked IOC last week to find a way to cut the cost of the joint venture project by 30%.

Algeria: New leadership has cut spending by $24 billion

As far as Algeria is concerned, it cannot afford to be involved in an oil price war. The country needs oil prices to reach more than US$92 per barrel to provide sufficient funds for various government expenditures. A few days ago, Algeria’s new leadership cut spending by US$24 billion, including 30% of the operating budget. The cost-saving plan includes halving expenditures on oil and gas projects, a measure that may accelerate the decline in oil and gas production capacity. Affected by harsh contract conditions, Algeria's oil production capacity has fallen by 100,000 barrels per day in the past four years.

A government consultant in Algeria said that if diene remains low, Algeria will need to be monitored by the International Monetary Fund (IMF) in the next 2-3 years.

Nigeria: Will be the first batch of countries forced to cut production

Even Nigeria, the largest oil producer in Africa, has become a victim of this oil price war. Oil traders said Nigeria cut the price of its main grade of crude oil by $5 per barrel last week and vowed to increase oil production. But with global commercial stagnation and lockdown measures related to the new crown virus, oil demand is collapsing with oil prices. According to IEA data, Nigeria can only increase production by 120,000 barrels per day, which is only 5% of Saudi Arabia’s capacity to increase production.

According to IHS Markit data, if Nigeria’s oil cannot be sold, its oil storage facilities can only store up to two days of production. Rystad data shows that based on Nigeria’s oil production cost of approximately US$29.60 per barrel, the country’s average oil extraction cost is higher than the international oil price of approximately US$25 per barrel.

Roger Diwan, vice president of financial services at IHS, predicts that Nigeria will be one of the first countries to be forced to cut production.

Nigeria also lacks sufficient fiscal reserves like Saudi Arabia. According to data from Fitch Ratings, Nigeria’s break-even oil price (that is, the oil price required to achieve government budget balance) is 57 US dollars per barrel, which is the highest break-even oil price among the major oil-producing countries in the Middle East and Africa.

Nigeria’s Ministry of Finance said that the country is looking for ways to cut its largest budget in its history by US$34.6 billion. Like Iraq, Nigeria is also fighting Islamic insurgency.

Diene: self-produced is not as cheap as imported

At the same time, Venezuela and Iran, which have been hit by US sanctions, have respectively sought US$5 billion in emergency funding from the IMF. Because oil exports are restricted by the United States, Venezuela's oil production has been cut by half. The country's oil quality is very low, and the extraction cost is higher than that of the United States.

An oil trader in Venezuela said: “If the low oil price continues, Venezuela’s own oil production will become meaningless and imported crude oil will be cheaper.”