Russia has just sparked what may end up being among the ugliest oil price wars in recent history. And Saudi Arabia is firing back. As the two oil superpowers face-off, American oil companies may end up as the biggest victims.
Russian President Vladimir Putin announced on Sunday that present oil prices were sustainable for the Russian economy. Adding that Russia had the tools to react to any adverse results of the spread of the coronavirus on the global financial climate.
"I want to stress that for the Russian budget, for our economy, the current oil prices level is acceptable," Putin explained in a meeting with Russian energy officials.
Now some oil analysts are anticipating barrel prices as low as $20 within the year. Some experts have suggested that Russia's move is intended to counter U.S. shale producers and hit back against the U.S. for targeting the Nord Stream 2 gas pipeline connecting Russia and Germany.
Saudi Arabia blasted back, in kind. Sunday morning, Saudi Arabia dropped its own oil weapon. Its latest plans will not only reduce its unrefined price to Chinese consumers by as much as $6 or $7 per barrel, but it is also reportedly looking to increase its daily unrefined output by as much of as 2 million barrels per day into an increasingly oversupplied international market.
The shocking move by the Saudis is both a market share grab as well as a loud signal to Moscow that it is finished playing games.
Within seconds of the market opening on Sunday night, oil prices plummeted as much as 30 percent, driving crude to its lowest level in four years. The Brent crude benchmark fell from $45 a barrel to $36.44 at the time of writing, while WTI plummeted from $40.45 to $32.97, in one of the single worst drops in recent history.
By Michael Kern for Oilprice.com
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Michael Kern is a newswriter and editor at Safehaven.com and Oilprice.com, More
Comments
Is there any hope for us managing our resources? How about for burning fossil fuel at a rate that is sustainable for our planet?
I'm afraid this is one of those times where the playground is looking out of control.
Meanwhile, U.S. production will go into hibernation as we finally see how over-priced our oil is.
Moreover, the US shale oil industry and Saudi Arabia will be the biggest losers. US shale oil drillers are already very heavily indebted. They will pay a heavy price since they will be producing shale oil at almost have its breakeven prices. Still, they may continue production banking on the probability that the US government will eventually bail them out rather than see a total collapse of the US shale oil industry.
Saudi Arabia will be by far the biggest loser from the oil price crash. Its budget deficit will mushroom impacting very adversely on its economy. Russia’s economy is highly developed and very diversified so it can live with an oil price ranging from $30-$40 a barrel compared with $85 or even higher for Saudi Arabia and most OPEC members.
Furthermore, Saudi Arabia’s threat to Russia is an empty one. Reducing its prices to Chinese consumers by $6-$7 a barrel is a gimmick since China is hardly buying crude oil while under quarantine. Moreover, any attempt to flood the oil market as it did in the aftermath of the 2014 oil price crash will prove a disaster.
Saudi Arabia can’t raise its oil production by 2 million barrels a day (mbd) as reported. Its production is in decline having peaked at 9.65 mbd in 2005.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
1: CFTC and US Regulatory failure / corruption. This includes energy, metals, & grains
2: Federal Reserve trading desk buying stocks to promote sustained economic boom
3: Federal Reserve manipulation of Bond - today All US Bonds are sub 1% - first in US history
Russia basically has no national debt and is willing to let companies fail. The US debt can never be paid off with currency in today's purchasing value. It's not just oil loans, it is car loans, student loans, credit card loans.
C-Virus is just a pin for the debt balloon. Balloons pop regardless of the size of the pin.
The Federal Reserve has one tool: Printing Debt. The Fed is not done yet. Negative rates are coming soon.