Asia’s Oil Market , Post-Coronavirus Era

World economy in the energy sector has a momentary look at the oil market and it actually knows it is impossible to stop this look in the short time. The Middle East and Asia are the center stage of reflection of this view as the U.S. sanctions on Venezuela have not been enough effective.Despite the U.S. unilateral sanctions against Venezuela, China shipped significant amount of crude oil to Venezuela in delicate ways in 2019. Before that, most of crude oil in Venezuela was produced by the American companies and it was bought by the American refineries.

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In the first half of 2019, China imported 350,000 bpd of crude on average from Venezuela. With repeated threats of the U.S., the amount of crude extraction of oil in Venezuela by Chinese company CNPC gradually dropped and it was almost zeroed in the second half of 2019. But the international section of Rosneft Company, which has been registered in Switzerland, buys Venezuela’s crude oil and ships it to areas near China. Malaysia has been determined as the destination for shipment of Venezuela’s oil which is later taken to Shanghai Port in China. Some 48m tons of crude was taken to China through this method in May, 2020, which shows 20 percent growth comparing to the same period in 2019.

The Chinese companies have stepped up imports of crude by taking advantage from rift among the OPEC member states, the rise in oil production by Saudi Arabia and the slump in the oil price. When we glance at the reports on transportation, we learn that the fare for shipping crude between the Persian Gulf ports and Chinese ports and chartering an oil tanker has jumped from average $33,500 on March 6, 2020, to 285,000 in the following week and it indicates changes in the growth of transportation cost in the market. These reports also show that Saudi Arabia’s share from the global oil market has become more in these days.

While investment in developing and exploring the oil fields is declining day by day in the wake of Coronavirus pandemic and oil price is slumping, Saudi Arabia has enhanced its production capacity to have major share of the market. According to the American investment bank JP Morgan’s report and despite slump in the oil prices in recent months, it is predicted the price of Brent oil to bounce back and to reach $60 per barrel. The Brent oil price was once $16 per barrel in April. The bank’s report predicts that the demand for oil would not exceed 91m barrel per day in 2020. This amount for demand for 2020 is almost 9 to 10 million barrels lower than other scenarios which had been predicted by the other energy studies think-tanks. It is predicted the oil demand in 2021 to return to its previous level of 100m bpd.

At the same time, slump in investment in energy sector, which will at least decrease by $625b according to the bank’s experts as well as closure of some oil fields in different parts of the world, will cause the decline in demand for almost 5m barrels of oil between 2020 and 2025.

So those areas, where oil is produced with cheaper cost or investment costs are cheaper there, can compete to dominate the market. On the oil shale and its expensive production cost comparing to the conventional oil, JP Morgan predicts its production to rise from 10.9m bpd in 2020 to 11m in 2030.

Before the Coronavirus pandemic, some scenarios predicted that oil shale production would hit 17m bpd in 2030 but due to the current condition in the U.S., it is unlikely to happen. So the OPEC members can take advantage of this gap and increase their productions and their shares from the market in order to minimize their budget deficits.

In this condition, Iran will have the lowest share of oil sales in 2020 ,and of course, new Majlis and economic resistance policies consider this trend of cutting dependence on sales of crude oil as useful for the national economy.

 By: Hamid Reza Naghashian