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Oil Prices Tank as Saudi Arabia Escalates Price War

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Oil prices dip after Russia breaks away from OPEC and charts its own path.
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By CNN

Oil prices sold at the lowest prices since 1991 on Monday night through to Tuesday after the world’s largest exporter of oil Saudi Arabia broke ranks with its former Ally Russia and launched a price war.

On Tuesday, CNN reported  US oil prices crashed as much as 34% to a four-year low of $27.34 (Ksh2811) a barrel as traders anticipate an all assault by Saudi Arabia which is contemplating flooding the market with crude oil in a bid to recapture market share.

Crude was recently trading down 27% to $30.04 (Ksh3089.48) a barrel. Brent crude, the global benchmark, plunged 26% to $33.49 (Ksh3434.02) a barrel.

Both oil contracts are on track for their worst day since 1991, according to Refinitiv.

The shock to oil was also felt by in stock markets which were already in panic mode due to the novel coronavirus outbreak.

The turmoil comes after the implosion of an alliance between OPEC and Russia, which had been regulating the supply of oil since 2017 in order to control the prices.

The trade war was further escalated when Russia declined to cede to OPEC’s proposal that sought to cushion the oil market which has been hit hard by the coronavirus by further cutting production at a meeting in Vienna on Friday.

The impasse left the oil industry strangled and sparked a 10% plunge in oil prices Friday.

Crude oil was already stuck in a bear market because of a sharp drop in demand linked to the coronavirus outbreak.

Saudi Arabia escalated the situation further over the weekend. The kingdom slashed its April official selling prices by $6 (Ksh617) to $8 (Ksh822), according to analysts, in a bid to retake market share and heap pressure on Russia.

“The signal is Saudi Arabia is looking to open the spigots and fight for market share,” said Matt Smith, director of commodity research at ClipperData. “Saudi is rolling up its sleeves for a price war.”

Analysts said that Russia’s refusal to cut production culminated into a slap of US oil producers many of which need higher oil prices to survive.

“Russia has been dropping hints that the real target is the US shale oil producers because it is fed up with cutting output and just leaving them with space,” analysts at energy consulting firm FGE wrote in a note to clients Sunday. “Such an attack may be doomed to failure unless prices remain low for a long time.”

The 2014-2016 oil crash caused dozens of oil and gas companies to file for bankruptcy and hundreds of thousands of layoffs. However, the US shale industry emerged from that period stronger and the United States would eventually become the world’s leading oil producer.

“The perils of playing a game of brinksmanship with Vladimir Putin were proven in dramatic fashion,” Helima Croft, head of global commodity strategy at RBC Capital Markets, wrote in a Friday note to clients. “It is hard to see how the relationship can easily be put back on a solid footing.”

See Also>>> Motorists to Feel The Pinch as Fuel Prices Go Up

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editor [at] businesstoday.co.ke

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