The rapid and unforeseen collapse in the oil markets is the outcome of an economic crisis which has very little to do with Russia, OPEC and OPEC plus. It is a situation that may continue to occur every time there is a serious global crisis of one sort or another. We have been there with excess capacity in 1985, 1996, 1998, 2008, 2014 and now, yet again!
Based on a variety of assessments, the current economic crisis has resulted in a 15 Mbd loss of oil demand, the duration of which may extend for months to come.
Given this challenging outlook, oil producers must seek an industry-wide capacity financing strategy that can prevent the recurrence of excess capacity crises in a realistic and sustainable manner.
In the near term, the only methodology that is now available on an industry-wide basis to reduce excess capacity is a return to free market oil pricing based on full cycle economics.
Beyond this crisis, however, a price ceiling of $40 – 45/barrel of Brent could be adhered to as an efficient economic ceiling that would prevent the development of many marginally profitable projects that are not sustainable below such prices.
Seeking to establish and maintain such an economic hurdle for all new oil projects should be the objective of OPEC, OPEC+ and all other major producers in the oil industry.
