The day the oil markets crashed – again. Is this time different?

Absent a new OPEC+ deal on March 6 in Vienna, in the context of the coronavirus downfall, the crude oil price plummeted overnight to the low thirties a barrel. Apparently, Moscow was more interested in punishing the US shale oil producers, which have been major beneficiaries of the higher oil price following the first OPEC+ agreement in early 2017, than in renewing its deal with Riyadh. To be sure, the OPEC+ deals were rather a matter of induced perception than real output cuts on the Russian side – a ‘’happy pro forma marriage”, as put by Kruthikin and Overland (2020). Yet the effects were real, propelling the US to the top of the world’s ranking of oil producers, with 13 mb/d in 2019.

It is highly uncertain that the new price war can bring long-term gains to Russia and Saudi Arabia. While the US shale industry is much more vulnerable this time around, and it will surely bleed, it will adapt and survive, albeit in an environment of lower oil prices. I estimate that, in a few months’ time, oil demand will resume, bolstered by upcoming state aid packages in the US, EU and China, and that the Brent prices will again stabilize within a corridor of $40-60 a barrel – hence about $10 lower than the one of the past couple of years.

Whereas investment in renewables, electro-mobility and energy efficiency is likely to be delayed by the depressed oil prices, the ambitious regulatory framework of EU’s climate policies can, nonetheless, create overarching economic incentives for green investment.

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