Impact of OPEC+ Breakdown and COVID-19 on California Fuels Markets
The impact of the OPEC+ breakdown and COVID-19 on California's fuels markets is unprecedented. With a sharp drop in gasoline consumption and limited production cuts by OPEC+, the market faces uncertainty. Recent events, including the OPEC+ production cuts, are reshaping the oil industry, leading to significant changes in fuel production and consumption in California. This article discusses the background, recent events, and the challenges faced by the fuels market due to the OPEC+ breakdown and COVID-19.
Uploaded on Mar 13, 2025 | 0 Views
Download Presentation
Please find below an Image/Link to download the presentation.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.
You are allowed to download the files provided on this website for personal or commercial use, subject to the condition that they are used lawfully. All files are the property of their respective owners.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.
E N D
Presentation Transcript
The Impact of the OPEC+ Breakdown and COVID-19 on California Fuels Markets Ysbrand van der Werf April 22, 2020 1
Background Information, 2019 The largest producers of crude oil in the world 1. United States 13 million barrels per day 2. Russia 11.5 million bpd 3. Saudi Arabia 10.5 million bpd How did this happen? OPEC+ nations have restricted output, US shale oil producers have rapidly increased output in response 2
Recent Events and Relevant Dates January 20: First US case of COVID-19 Mid-February: outbreaks in South Korea, Iran, and Italy March 6: OPEC+ talks break down; Russia refuses to cut production March 11: Saudi Arabia announces plan to increase production March 13: US national emergency declared March 16: California travel and activity restricted April 12: we ll come back to this 3
OPEC+ and COVID-19 Two distinct influences going on 1. COVID-19: Consumption of gasoline is dropping sharply and refineries are cutting production 2. OPEC+: Crude oil market is seeing rock bottom pricing but reluctant and limited production cuts These combine to cut prices and consumption dramatically, for the foreseeable future, but we cannot see far This is far beyond anything we have ever seen in fuels markets, consequently even measuring the economic events is difficult The duration is unknown; if circumstances do not change, it is even more difficult to say how the economy/markets will develop (decay?) 4
OPEC+ Production Cuts On April 12, OPEC+ announced a 23-nation agreement to cut a combined 9.7 million bpd of crude oil production starting May 1, 2020 The details of this are somewhat vague and the consequences debatable As a result, the OPEC+ complication could be back-burnered for some time, leaving COVID-19 as the only uncertainty in the market For how long? 5
Recent Events are Unprecedented This is one illustration of the magnitude of recent events Going back to 2017, we see fairly steady gasoline production, even in the summer driving season of 2018 Since March 20, gasoline production for California has nearly fallen in half: from 972 to 523 on April 10 Diesel production shows no sign of anything unusual Entire refineries are temporarily shutting down production Marathon Martinez California Gasoline and Diesel Production (Thousand barrels per day) 1,200 1,000 800 600 400 200 0 California Gasoline Production California Diesel Production 6
California Gasoline Prices California Rest of US Crude Oil (barrel) Brent: $28 WTI: $18 WCS: $3(!) Regular Gasoline (gallon) $2.75 $1.74 Electricity, residential (kWh) 18.9 12.9 Electricity, commercial (kWh) 16.3 10.7 Note: As of April 17; WTI is West Texas Intermediate; WCS is Western Canadian Select California refineries use crude oil based on the price of Brent crude. In the rest of the US, WTI is the most common grade, but no pipelines cross the Rockies, so more expensive crudes are used by California refineries California gasoline prices are the lowest since December 2016 and have fallen from 2019 average of $3.60 US gasoline prices are much lower: the lowest since March 2016 and the 2019 average was only $2.60 The gasoline price forecast is a forecast of the California premium over the course of the entire year 7
Consequences for Gasoline and Alternative Fuels Gasoline price that equalizes fuel costs per mile for gasoline and electricity in California 2019 IEPR forecast (midsize cars) What will happen to demand post COVID-19? In long- run, crude oil and gasoline prices might remain reduced Even at these lower gasoline prices, EVs seem to maintain a significant fuel cost advantage These are average prices, EVs may actually pay either more or less Other market factors: e.g., storage capacity, Russian intransigence Residential Price $1.67 $1.78 $1.84 $1.92 Commercial price $1.39 $1.50 $1.56 $1.64 Future scenarios: economic factors (COVID-19 duration, duration of recovery, level of recovery), resulting prices; impact on EV adoption 2020 2021 2022 2023 Possible long-term behavior changes o Increased teleworking o Reduced travel due to fear & economics o Business bankruptcies & unemployment o Increased e-commerce o Or return to normal 8
