 Hello and welcome to NewsClick. Today we are going to be talking about the situation with global oil prices, particularly in the aftermath of the last week when prices in the U.S. market actually declined to negative. We have with us Prabir Purkhaisar. Prabir, thank you for joining us. So first of all, could you explain what it means when prices go negative? So the number was around minus $37 or something. So what exactly does it mean? What it means is the person who is committed to taking delivery has no storage and therefore he has to give it to somebody who will take it off his hands. Whoever was supplying the oil, normally if you don't take supplies, if you don't take his supply, then he might charge you a penalty. In this case whoever is producing, say you've got to take it. You were committed to it, you've got to take it and then of course the trader was left holding that oil with no storage and he had to pay somebody to take it off his hands. That's why the negative price so this is the real key issue that North America is rapidly running out of storage, particularly by the end of April, it's supposed to be that there is no going to be no storage. So anybody in May who doesn't have storage then cannot take the oil and is therefore the prices are not only could crash but even go to negative as we saw it did. Initially it was felt well, it is a May problem and since everybody is now cutting his cloth according to whatever it needs, therefore this issue may not come up in June but what we are seeing is that the June prices are also not looking good, they're the 10 to 11 dollars so all of this doesn't over well for the oil market. So as far as producers are concerned, especially in the US what real options are there and there's also been some talk about the risks of what happens if you shut down production so we'll talk a bit about that. Yeah I think the longer term problem that the oil market has particularly for North American producers because a lot of the production comes from as you know shale oil or what's called tight oil. So whether it's the sands which Canada has which also you can produce oil from or it is the shale oil and today United States produces almost 65% 63-65% of its oil from shale oil or what's called tight oil. So if that is so then their prices have to be relatively high in order for it to for them to make sense to produce but the risk they carry is if they shut down a well complete that means not just to produce production but shut it down and that's true also for other oil reservoirs which are there for instance in the Gulf, Saudi Arabia reserves and so on that if you shut off production completely then you risk the whole reserve that you have and you may never be able to revive that oil field again. So this is the risk that shale oil suppliers some of them not all and some of the those who have oil reserves when already there is ingress of water and other things they may have real problems of trying to shut down those wells completely and reduction of production is one thing shutting down wells is a different issue. So I think there is a risk therefore of long-term damage to these oil companies the who those who hold those reserves and therefore this is not simply one of shutting off attack. There are other consequences and if they want to start again there is again a huge amount of money they might have to reinvest in order to start with start those wells. This is the critical issue that we have and as we now know some of the pipelines are saying why don't you start start using us as storage because piping of oil now is not going to be so important with lots of the stocks that were supposed to be delivered from the crude oil suppliers not being there. So they said well you could also consider pipeline storage but you know this is all a short-term solution. The real issue is that demand has collapsed and supply therefore has to fall in real terms and if it doesn't the price is going to collapse as well. And a couple of other developments have been trump for instance is speculated about imports from Saudi Arabia. He issued a threat to Iran the other day about US vessels being harassed and some of this was seen as a response to the decline in prices also. So could you talk a bit about the geostrategic aspects especially in what's going to happen in West Asia and US relationship to these countries in this situation? Well I think Trump's threat to Iran was more in the nature of threat a day keeps Trump happy and if he cannot find anybody to threaten that day then he threatens the lungs of people with putting in disinfected bleach and so on into the lung of people to treat them for COVID-19. So we leave Trump out of it because he is a regular disturbance. It doesn't mean he's not dangerous but he's an unpredictable disturbance. So we leave that out of the picture. If you look at other issues the western oil producing shall we say states geographies have influential senators who have been threatening Saudi Arabia that will stop your oil from coming in will do ABCD will stop stationing our troops and so on. So will stop probably also selling you arms in which case of course the arms suppliers who are there the United States will have a very serious problem. But living all of that out essentially issue is threatening Saudi Arabia to keep oil prices high but in a situation where demand has collapsed lockdown means people are not using cars people are not going to offices people are not going for the holidays. So there is this whole issue the transportation system which takes the bulk of the global oil that they are not going to be in a position to do that and this is not a short term 15 days 20 days issue. This is a much longer term issue which may go on for three to six or even 12 months in which case if you have a 12 months really collapse of demand of a significant kind then obviously oil production has to be cut and if oil production is not cut then the oil prices will collapse because there is no storage. So something has to happen as they say something has got to give. So this is the first thing that we have to note and oil production in the United States going to be hit as we know more than 60% of their oil really comes from what's called tight oil or shale oil. So that's going to be Canada is going to be hit. There are also other producers like Venezuela were already hit but you asked me about West Asia because that's today the biggest producer of oil at least for the market apart from Russia which of course as we know is also big producer. Russia has China to supply. Russia has its own internal demand. It has gas to supply to Western Europe. So that may not be that badly hit but West Asia is going to be hit because where does its oil go? It goes to all over the world including India for instance. So that is going to be hit particularly Saudi Arabia and countries like Bahrain who have calculated a fairly high rate of oil or their budget balancing their budget. Saudi Arabia has calculated they're going to get $80 per barrel for their oil and that's how they're planned. So I think all these plans are going to be in deep trouble and they will have to redo all their arithmetic again. How much they can do it is an open question but certainly this is going to lead to a large dislocation particularly countries whose primary source of income has been oil but countries like India who have a large part of the NRA income coming from West Asia would also be hit because a part of India's really income comes from that but the countervailing issue is of course will be also buying less oil. So effectively our import bill would also come down substantially that has a tertiary effect on India's finances, government's finances because a lot of it is really funded by the tax that Indian government puts on the consumption of oil in terms of the excise duties, customs duties, all of those duties that we put means that ultimately at the end of it the consumers are charged a high price and it's a tax on those who are using oil. So there are going to be cascading effects on the economies of different countries but some total is West Asia is going to lose some ground and the United States which controlled the energy market of the world today I think is going to see its control slip and some part of it the control they'll have to share with Russia and China. China is the biggest consumer, Russia is a stable supplier who can live without the global market as long as in the Chinese market and an internal market. Right and finally at the risk of doing some crystal ball gazing do we also see some major changes in the way production and industrial activity itself happens because of this lockdown because as of now we don't know if there are going to be second waves or third waves of infection we don't know what sort of economic adjustments and how long these some of these will have to be made. You see I think we are going to see for at least three to future nine months at least if not well months you are going to see a kind of lockdown if you will where a lot of people even if various restrictions are physically lifted they will reduce their going out meeting people going to bars going to cinema halls all of those social activities we take from granted is I think going to come down. Of course economic activity still may start picking up because factories will start production will start but a whole bunch of things which depend on supplying to all of these activities which are as I said things where people gather and there are social gatherings of different kinds if that goes down what happens and obviously the hospitality industry would be hit tourism would be hit air traffic would be hit and so would automobile industry and of course consumption of petrol. So these are the areas where we are going to see a downturn certain activities would pick up obviously online activities distribution using services like Amazon in India the huge number of them already China has a huge number of them so does the United States as you know takeaway services are very big in the US in the food industry particularly so all of these may still survive or do better but certainly a section of the demand a part of the demand is going to go and that's going to lead to a longer economic crisis it's not going to be a sharp drop and a sharp coming up what is called the v-shape recovery that's not going to happen what you're going to do what you're already seeing is a very steep cut as people are saying we are in the domain essentially of the 1929 crash so we have we are seeing a deep what I will call a deep cut in economic activities steep fall in economic activities but when it comes back it's not going to come back so slowly because as you said this is going to have maybe a second wave a third wave or it would be a smoldering epidemic which means a kind of self-regulation if you will or partial regulation by the government depending on which part of the world you are in will continue thank you for being so much for talking to us that's all we have time for today keep watching news click