Were it not for the deadly coronavirus pandemic saturating news coverage these days, the great oil price war of 2020 would be the big story of the month. For those who haven't been paying attention, except perhaps in passing the falling prices at the gasoline pumps, the situation in the oil game has been brutal thus far in 2020, and it's likely to get even worse.
That's because a rise in oil production by Saudi Arabia and Russia, coupled with demand that is expected to plummet as a result of the COVID-19 crisis, likely will bring about an oversaturation of oil supply and cause oil prices to plunge even further. Since the beginning of the year, crude oil prices already are off roughly 60 percent.
While Brent crude had settled into a normal range of $60 to $65 a barrel in recent times and WTI crude at $55 to $60 a barrel, as of April 1 the price for Brent was under $23 a barrel and WTI barely above $20. And some observers say those prices may go even lower because Saudi Arabia and Russia have vowed to ramp production up even more as an agreement between OPEC and its allies expired at the end of March.
Some projections say oil production will surge by 3 million barrels a day during April, while demand could plummet by 22 million barrels a day, given all the travel restrictions in place around the world.
The likely losers in the price war are the U.S. producers of shale oil, where the break-even point is close to $40 a barrel. And the rubber product makers that rely heavily on supplying that sector will feel the pain along with them, at a time when much of the rest of the economy also is grinding to a halt.