Saudi Arabia (OPEC) Launches Oil Price War Against Russia

In the early hours of Monday, oil prices plunged after Saudi Arabia declared a price war against Russia, a former ally; thereby, causing a historic collapse. Following the collapse, the US oil prices crashed by 34% to $27.34 a barrel, a four-year low. Only recently, Crude traded down 27% to $30.04 a barrel with the global crude benchmark, Brent crude dropping 26% to $33.49 a barrel. 

As expected, the blow didn’t just affect the oil market, but as well, the stock markets. Thus, increasing the panic of the stock markets, since the coronavirus outbreak began having effects on it. During Monday trading, the US future recorded a large number of declines, while the Asian market plummeted. Germany’s DAX (DAX) plunged 7.4%, Europe’s FTSE 100 (UKX) was down 8.5% with the BP (BP) also down 20%.

The oil price war started after OPEC and Russia fell out of a long-term alliance. Through the OPEC-Russia alliance, oil supply had been restrained since early 2017, as a way of supporting prices. The fall out occurred as a result of Russia’s refusal to accept OPEC’s proposal to prevent the oil market from being further affected by the impact of the coronavirus outbreak and cutting production. This was discussed at a meeting that had the 14 OPEC member states (headed by Saudi Arabia) and other non-member states in attendance in Vienna on Friday. There was a disagreement between both parties on cutting production by 1.5 million barrels a day.

As a result of this, the oil-industry dropped 10% in oil prices on Friday. Prior to this, crude oil had already entered bear territory due to the sharp drop in demand as a result of the coronavirus outbreak. In an attempt to pressurize Russia and retake its market share, Saudi Arabia slashed its April official selling prices by $6 to $8. Its, global oil production outpaces demand by far, and it is expected that Opec members are able to pump more oil to capture their market share.

Analysts have also reported that Russia’s production cut refusal is targeted at US shale oil producers who need oil prices to go higher in order to “survive.” 

 

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