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Analysis: the negative historic price of oil - implications for Romania

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The day of Tuesday 22 April represented a shock for the oil industry, for the first time in history the barrel was traded at negative values in the US. The West Texas Intermediate oil (WTI) was traded at -40.32 USD/barrel by comparison to a value of 18.27 USD/barrel on Friday.

The consequences of this situation for Romania differe from one category to another, Razvan Nicolescu says in his analysis. For consumers, especially for transporters, this collapse of the prices seems to be a gain on short term, which they cannot enjoy due to the massive reduction of activity generated by the medical crisis. On long term, this situation, if it lasts, it will generate

bankruptcy and production closing down in the oil industry, which will not help in the price perspective, consumers will not gain, either.

For the state, this is no good news, as the oil industry in Romania has its activity with ten  thousand people. Moreover, the state budget will be affected by the payment of debts, taxes and excises generated by the drop in quotation, consumption and, possibly production.

For the industry, the situation is worrying. As for production, Romania has small oil fields a? productivity, with a high number of wells and a significantly higher production cost than the international average. This type of production gets the biggest blow in the case of drop in pricef

for a long term..

As for refineries, we are not seriously affected for the moment, due to hazard: the Petromedia refinery was closed down for general revision since mid-March. Even so, as the consumption dropped considerably,  the other two big refineries (Petrobrazi and Petrotel) started to have  functioning problems.

If Petromedia ends its revision term in time and starts work on 1st May, the situation will be even more complicated. The state can really help the local industry and the consumers at the same time, by reducing the compulsory biofuel quota that come from abroad. This measure does not help the sector for long.

As in any difficult situation, there are opportunities as well. Oil Terminal, the company which manages important capacities for storage in Constanta, could become one of the energy companies in Romania to profit from the present crisis. An increase in storage tariffs for oil and oil products, the transparency of available capacities and the putting to work of several capacities could increase significantly the income and the profitability of  Oil Terminal, a company with diverse shareholders, listed on BVB. A theorectica opportunity could be for the state as well. There are storage capacities with the national agency which manages the state reserves.

* Razvan Nicolescu is partner with Deloitte Central Europe, being the coordinator of the energy and mineral resources practice. Between 2009 and 2015 he was at the leadership of The European Agency for Regulation in Energy.

 

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