Oil Prices Fall by 30% in One Day

Hülya Karahan: Production Editor

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The three-year OPEC + production reduction agreement led by the Organization of Petroleum Exporting Countries (OPEC) led by Saudi Arabia and Russia and other oil-producing countries ended on Friday (6th) with the collapse of consultations. In response, Saudi Arabia sharply reduced the price of oil exports , Detonating the oil price war. The international oil price slumped by more than 30% at the opening of the market on the 9th, the largest drop since the United States launched the war in Iraq in 1991, and also detonated the super shock of the international financial market.

The OPEC + agreement cuts production by 2.1 million barrels per day until the expiry of March. In response to the market demand that has plummeted due to the spread of the new crown pneumonia epidemic, Saudi Arabia proposes to extend the current agreement to the end of the year and further reduce production between April and June. 1.5 million barrels. However, Russia is opposed to the proposal, which should lead to the breakdown of its three-year production reduction agreement.

Saudi Arabia will raise its oil production to more than 10 million barrels per day after the collapse of the OPEC agreement.

Saudi Arabia, the largest oil exporter in the world, intends to increase oil production to more than ten million barrels per day in April, after “Aramco” will boost its production of crude after the end of the current OPEC + reduction agreement at the end of March.

And yesterday, the world’s largest oil company cut the official sale price for next month‘s shipments of all its raw materials to various destinations, after the collapse of the agreement to cut oil supplies between OPEC and Russia last Friday, which pushed crude prices down sharply in global markets.

The cuts for Asia, which is a major growth market, went between four and six dollars a barrel, which is probably the largest drop in prices ever, and three times the expectations that were around a two-dollar reduction in Arab light crude.

The sources said that April production will significantly exceed ten million barrels per day, and may be closer to 11 million barrels per day.
Saudi Arabia has pumped 9.7 million barrels per day in the past two months.

The sources said that the message of the Saudi Energy Minister is that Aramco increases its production and sells more crude to protect its market share.

Saudi oil production capacity is 12 million barrels per day, which gives it the ability to increase production quickly.

A three-year agreement between OPEC and Russia ended on Friday after Moscow refused to support deepening oil cuts to cope with the outbreak of the Corona virus, and the organization responded to that by eliminating all restrictions on its production.

The Organization of Petroleum Exporting Countries (OPEC) on Thursday, March 5, agreed to limit oil production by an additional 1.5 million barrels per day in the second quarter of 2020.

The decision was made to support prices amid an outbreak of coronavirus.

An outbreak of coronavirus created an “unprecedented situation”, with risks “tending to decrease,” which requires action, OPEC said.

The ministers agreed on an additional reduction of production by 1.5 million barrels per day until June, while non-OPEC countries are expected to take on a limit of 500 thousand barrels per day. The organization also proposed extending the current agreement until the end of 2020.

Moscow previously signaled that it would support the extension of the pact, but not an additional restriction on production. OPEC + ministers  meet in Vienna on Friday.

The previous market share war between the world’s largest producers, such as Saudi Arabia, Russia, and the Middle East, broke out between 2014 and 2016 when they tried to clamp down on shale oil production from the United States by cutting prices and providing more supplies to Asia.

Asian buyers can choose between options, after arbitrage windows were opened for oil prices from Europe, Africa and the Americas, after Brent crude price premium above Dubai crude contracted sharply, and tanker rental rates fell below their peak levels recorded in January.

The last time this situation happened – the spot price retreated from the forward – in 2014 and 2015. Millions of barrels of oil were then stored on board ships and tankers across Asia, Europe and Africa.

Analysts believe that the “strategy of shock and awe” adopted by Saudi Arabia may be an attempt to inflict maximum suffering on Russia and other producers as quickly as possible, in an attempt to bring them back to the negotiating table, then followed by reversing the production trend and starting to reduce it quickly if an agreement is reached.

The increase in production and the big cuts represent a major escalation of the Saudi Oil Minister, Prince Abdulaziz bin Salman, after his Russian counterpart Alexander Novak, during the last OPEC + meeting last week in Vienna, rejected a proposal to collectively reduce production.
After the talks collapsed, Novak said that every country has the freedom to pump as much oil as it wants from the end of March.

Reviewer overview

Saudi Arabia to Boost Oil Production in April - /10

Summary

Saudi Arabia will raise its oil production to more than 10 million barrels per day after the collapse of the OPEC agreement.

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