Explained: Russia-Saudi Arabia Oil Price War 

by Swarajya Staff - Mar 10, 2020 11:18 PM +05:30 IST
Explained:  Russia-Saudi Arabia Oil Price War  The Saudi delegation at OPEC. (Photo By: AFP/Getty Images)

Saudi Arabia, the world's biggest oil exporter, is set to flood the oil market with 12.3m bpd (barrels per day) in April, marking a dramatic escalation in its price war following the collapse of talks between cartel Organization of Petroleum Exporting Countries (OEPC) and Russia over crude production cuts.

The country’s current production levels stands at 9.7 million bpd.

Russia’s energy minister Alexander Novak has responded by saying it too could raise production by a further 500,000 bpd in the “near future”.

Late last week, talks between OEPC and Russia collapsed as the two sides failed to agree on an output cut deal. This pushed Saudi Arabia, the worlds largest oil producer, to unilaterally cut its crude prices and announce increase production leading to a mayhem in an already over supplied oil market.

A potential oil price war at a time when demand is depressed due to the heightened fears over coronavirus crisis triggered one of the biggest one-day price falls in history on Monday (Mar 9), spooking global financial markets as crude fell by as much as 30 per cent to nearly $30 a barrel.

Reports suggest that at the Vienna meeting between oil producers last Friday, Russia's energy minister Alexander Novak told his Saudi Arabian counterpart Prince Abdulaziz bin Salman that Russia was unwilling to cut oil production further.

The Kremlin had decided that keeping oil prices steady in market ravaged by further shrinking of demand on coronavirus spread, would be a gift to the US shale industry.

The Russian thinking, as per reports, was that the frackers in US had added millions of barrels of oil to the global market while Their own companies compressed production. It was time to squeeze the Americans now.

For last few years, US had become a major player in the oil export market and its share in global trade has been rising though overall it still remains a small player. But for US to remain a serious oil player in the export market, prices of global oil has to be above a threshold of day around $50 barrel.

Analysts said that Russian thinking on US shale is not completely misplaced but this was not the tune to trigger an oil price war and instigate Saudi Arabia that has also suffered heavily due to low oil prices.

The US Department of Energy criticised the price war claiming that it amounted to “attempts by state actors to manipulate and shock oil markets”, adding that the US as the “world’s largest producer of oil and gas, can and will withstand this volatility”.

While oil markets stabilised on Tuesday with prices jumping by around 10% on Tuesday (Mar 10) , with Brent crude trading near $36 a barrel, we could be in for a extended period of lower oil prices as tensions between Saudi Arabia and Russia worsens.

(With Inputs from IANS)

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