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Brent crude fell below $27 last week for the first time since
2003. Global demand for oil plummets, while supply increases. Saudi Arabia and its allies,
as well as Russia, have decided to increase their exports, provoking a price war which we cannot
don't see the outcome at the moment. Fatih Birol, Director General of the International Energy Agency delivers his
analysis at "Echoes".
Fatih Birol
Director General of the International Energy Agency
Does the oil crash we are going through have precedents in history?
Demand for oil has sometimes fallen sharply during the most severe recessions, such as the one that
followed the financial crisis of 2008. There have been times when crude oil production has jumped, as in 2016 with the boom
American shale. But the current situation is unparalleled in the last hundred years, because
it combines a demand shock and a supply shock. We estimate that the surplus will reach 5 million
barrels per day in the first quarter, the equivalent of 5% of world consumption. And we must very
certainly revise this estimate upwards.
Why has Saudi Arabia decided to flood the market when demand is collapsing?
This is very surprising, because Saudi Arabia is hurting itself by driving down prices. In my view,
it is political and diplomatic considerations that have taken over, because it is impossible to justify
such a strategy on an economic basis. This price war, or market share, is going hard
hit producing countries that were already weakened. I see no winner in this situation
unprecedented.
Russia also played a role, refusing to extend the quotas negotiated with OPEC…
Moscow wants to destroy shale oil in the United States by lowering prices. From my point of view,
it's a game of russian roulette, it won't work. Of course, American producers will reduce their
significant production in the coming months. But as soon as global oil demand
will pick up again, prices will go up and shale will quickly return. The geology of the Texas subsoil will not change
not, the technology and the know-how will not leave. And the sector has become very responsive. The time that
elapses between drilling a well in Texas and putting it into production has been considerably reduced. the
American shale has demonstrated its resilience again and again.
What will be the consequences of such low prices?
The citizens of the world will remember that the great powers which had the power to stabilize
the economy of many countries in a period of unprecedented pandemic have decided not to exercise it.
History will judge them. Producing countries will find themselves in serious difficulty. Just one example: Iraq is firing
90% of its oil tax revenue. At current prices, Baghdad can no longer pay the salaries of the
half of its civil servants, without even mentioning the expenditure on health or education. Algeria, Nigeria,

Angola, Oman are going to experience extremely difficult times, especially in dealing with the pandemic
who watches them.
How to get out of this crisis?
There are two solutions. The first is a generalized economic recovery after the pandemic, which
would allow demand to pick up gradually. The second would be that the major oil-producing countries
agree to stabilize production. I am in regular contact with the Secretary General of
OPEC and with ministers of exporting states. There are informal contacts, but nothing concrete
came out so far.
How low can the price per barrel fall?
Demand is plummeting. Contrary to what happened in 2008, the impact of the crisis on oil
is disproportionate, because it primarily affects transport. The airline sector represents only 1%
of global GDP, but nearly 10% of crude oil consumption. However, we can think that the recovery of
air travel will be very slow even when the epidemic has passed, as people will be reluctant to
to travel. If current trends continue, prices will continue to fall. They might even
fall below average production costs.
Oil companies are reducing their investments to cope with the shock. What consequences will this have for
term?
This crisis risks curbing the sector's appetite for investment. If demand resumes soon after
the epidemic, this could result in an insufficient supply, in the long term. but this is not the question
today.