Brent crude prices continued its free fall to about $25.83 a barrel, as governments take more measures to contain the global coronavirus pandemic.
Osama Kamal, former petroleum minister, told Daily News Egypt that the oil barrel price is determined by two factors. First of which is the capital cost, which ranges from $12-20 per barrel. Second, is the variable cost of labour and other expenses, which ranges between $8-20.
He stressed that there are small international oil companies will be destroyed by the current prices because they do not have the financial ability to bear such losses.
Kamal expected continued oversupply of crude oil in the markets until the end of next April. In case this date witnessed the disappearance of the coronavirus and the return of economic activity in the region.
Saudi Arabia will start to reduce production mid- May said, Kamal.
He explained that the total global production of oil is currently estimated at 100 million barrels. About 42 million barrels of which are produced by members of the Organization of the Petroleum Exporting Countries (OPEC), and 58,000 from other countries.
He said that the oil price war that is currently taking place between the US, Saudi Arabia, Iran, China, and Russia, is the reason behind Saudi Arabia’s decision to increase its crude production.
Kamal pointed out that Saudi Arabia will be among the countries most affected by the drop in oil prices globally. However, Riyadh also has the lowest production cost per barrel of oil globally.
An official at an international oil company confirmed that the average actual cost of producing a barrel of oil is $30, explaining that currently, losses are no less than $5 per barrel.
He said that the crisis that companies currently face is similar to 2014 when the barrel of oil fell to $20.
Goldman Sachs cut its forecast for the price of Brent crude in the second quarter by a third to $20 a barrel, expecting a record decline in global demand by 1.1 million barrels per day this year due to the implications of the coronavirus outbreak on economic growth.