My understanding is that the coronavirus lockdown is a much bigger factor in the drop in oil prices than the Saudi-Russia dumping. My source is an expert I heard on a podcast, and I’m not sure I could find it again, so please don’t ask for a cite.
I’m not convinced of this: oil prices were already very low before the lockdown.
That is true for supply and demand but not true for price controlled commodities. Oil is price controlled down to the price point generated by US fracking. Anyone trying to control the price (OPEC) is limited by the cost/price created through the higher volumes capable of fracking.
The fluctuation created by the demand side (lower volumes due to the coronavirus) is limited in time to the excess level of product on ships and in storage. Once that is adjusted then prices set by OPEC.
So What did I just say? Saudi Arabia and Russia conspired to take short term losses in prices in order to shut down the more expensive US oil produced through fracking. They did this to regain some of their control over future oil prices. They received less money in the short term in order to make more money in the future. Because of the virus the demand went down enough that we could not store oil and thus the price of oil went negative. For a very brief period they had to pay to get their oil offloaded on ships already loaded with it.
It was a very temporary event. I was able to pay .99 cents a gallon 2 weeks ago and now the price is back up to $1.64 at the same location. The .99 price was due to a glut of oil sitting in tankers. The overall price of oil is linked to the cost associated with fracking. We were paying $3.70 gallon in 2012. There were debates on this site that we couldn’t frack enough oil to drive down the cost but in 4 years the price was down to $2.12 gallon. That was due to fracking. Whatever the market cost of fracking is can be see in that price. Much below it and fracking ceases.
The reason you see the price back up is that President Trump threatened Saudi Arabia with a withdrawal of military support if they didn’t stop deliberately trying to price fix fracking out of existence.
The same holds true on a lesser extent for natural gas in Europe. Trump went to Germany and convinced them toupgrade their natural gas ocean shipping terminal. This was in response to the Russian pipeline being built into Germany. Congress is also looking at sanctions against the pipeline company. The idea was to make it difficult for Russia to exert political and price control of natural gas on Germany like they’ve done to Poland in the past.