Oil prices lost nearly 30% of their value as Saudi Arabia and Russia begin a price war
Oil prices lost nearly 30% of their value as Saudi Arabia and Russia begin a price war after their three-year supply pact collapsed. This is the worst one-day fall since the start of the first Gulf war in 1991.
Over the weekend the oil company Aramco decided to boost its crude output significantly above 10m barrels per day and slash prices for all its crude grades to all destinations. Earlier Russia refused to join an Opec plan to cut supplies.
As oil prices keep falling, the International Energy Agency announced that demand for oil would shrink for the first time in a decade because of the impact of the coronavirus.
Higher production and price cuts by Aramco are likely to push world prices down further, hurting countries that rely on oil exports for tax income and foreign exchange, especially in Africa, south-east Asia and South America.
The strategy Saudi Arabia seems to adopt is to target Russia and US shale oil firms to lose money when crude prices fall below $50 a barrel for more than a few months.
Other Opec producers, such as Iraq, Kuwait and the United Arab Emirates, are expected to follow Saudi Arabia’s lead with price cuts and increased production from April.
The Saudi decision came after the Russian energy minister Alexander Novak announced that from 1 April neither Opec nor non-Opec countries had any restrictions on production.
This means that April’s production would be significantly higher than 10 mullion barrels per day, possibly closer to 11 million. Saudi Arabia has an oil output capacity of 12m bpd, giving it the ability to swiftly increase production.
China is responsible for around 80% of global oil demand growth last year but the coronavirus has forced the country to shut factories and refineries across the key industrial province of Hubei, and left tankers of crude stranded off its coast.