Oil prices collapse with biggest drop since 1991 Gulf War
Saudi Arabia has taken drastic measures after Russia refused to comply with OPEC efforts to stabilize the market. The economic fallout of the coronavirus outbreak is cutting deep into global energy demand.
Oil prices on Monday fell by over 30%, the greatest fall since the 1991 Gulf War, after Saudi Arabia decided to slash prices on its inventory. The move was widely seen as a reaction to Russia’s refusal to cut its oil production.
During a meeting with Organization of Petroleum Exporting Countries (OPEC) last week, Russia said it would not go along with members’ efforts to stabilize the market by cutting production. Moscow’s move further spooked the oil markets, already reeling from a major fall in demand due to the global spread of COVID-19.
The OPEC+ meeting, which includes Russia, was supposed to agree to further cuts of 1.5 million barrels per day (bpd), or about 1.5% of global supply, and to extend the existing 1.7 million bpd oil cuts beyond March. Let alone agreeing to further cuts to deal with the coronavirus fallout, Moscow even ruled out extending the current production cuts — which was being seen by many as a done deal — virtually putting the three-year-old OPEC+ alliance on ventilator.
War on US shale
Analysts say Russia’s decision to dump the oil alliance — which has not only helped Moscow make more money than Saudi Arabia thanks to Riyadh taking on a much bigger share of the oil cuts but also helped it increase its geopolitical clout in the Middle East — was driven by its desire to capture market share from US shale companies, many of which have been struggling to stay afloat as oil prices remain low.
Russia has been has been a reluctant signatory to the alliance amid fears of losing market share to US shale players, which are not participating in output cuts but have benfited from the alliance’s efforts to boost oil prices.
The oil price collapse is a further blow to US oil producers, many of which need oil prices to remain at $65 or higher to break even and have been forced to slash jobs and investments in exploration and production amid low oil prices.
Forty-two oil and gas companies filed for bankruptcy in North America last year, according to the Haynes and Boone law firm. That took the total count of bankruptcy filings by US producers to 208 since 2015, when oil prices crashed.
Deep cuts
Saudi Arabia, the world’s biggest oil exporter, is trying to hit back at Russia, according to analysts.
Brent crude fell by as much as 31% shortly after open on Monday to levels where it was prior to OPEC’s alliance with Russia and nine other non-OPEC oil producers in 2016.
The current supply deal between OPEC and Russia expires in March. Saudi Arabia plans to boost crude output to above 10 million barrels per day, and also slashed its April official selling prices by $6 to $8.
On Monday, stock markets plunged owing to coronavirus fears and the free fall in oil prices.
Source: dw.com