Saudi Arabia, the world’s top exporter of oil took aggressive moves to raise the production and discount the price leading the Oil market crash. The market fell after Saudi Arabia and Russia intensified the war over crude oil prices. The move taken by Riyadh has resulted in a 30% crash in the price in one day. This is the biggest fall in 24 hours since 1991 Gulf war.
In response to Russia’s disagreement on cutting down oil production, Saudi Arabian Oil Co. a state-run company said that it would increase the overall production to 12.3 Million Barrels per day in April.
The growing tension between Saudi Arabia and Russia
Russia and Saudi Arabia are the members of Opec+, an international organization of Petroleum exporter, and with a growing number of coronavirus cases, Riyadh wanted to reduce the production to save the Oil market from ongoing disruption of global economic activities. On the contrary, Russia opted out of the plan. The unexpected move of Russia made Saudi Arabia, a long-term ally, to aggressively cut the oil price and increase the production resulting in the crash of the international Oil Market.
The threat to discount crude oil prices by Saudi Arabia also considered as an initiative to strengthen its position as the world’s top exporter of crude oil. According to close sources, the Opec members were willing to cut the production to fight the economic slowdown, however, Russia objected to this consensus.
Russia and U.S Rivalry
The refusal of Russia to the proposed production cut by Opec+ is also considered as an indirect attempt to reduce the coverage and market cap of the US shale industry. After the significant cut in oil production by Russia and Saudi Arabia a few years back, the US drastically increased its production up to 4.5 million barrels a day expanding its presence in global oil export.
According to Goldman Sachs oil analyst Damien Courvalin, the crude oil price will remain low for the next few months as the supply outpaces the demand. The price will revolve around $30, a 50% reduction since January 2020 price, for the next 6 months.