Mohammed bin Salman and Vladimir Putin at the G20 Summit in Osaka, Japan, on June 28. Jacques Witt/AFP/Getty Images
https://www.cnn.com/2020/03/11/business/oil-prices-saudi-arabia/index.html
Just
a day after confirming that it would jack up production by about 2.5
million barrels per day starting April 1 in a battle for market share
with Russia and US producers, state oil company
Saudi Aramco
said it would increase its "maximum sustainable" capacity by 1 million
barrels to 13 million per day. In other words, the Saudis are digging in
for a
war of attrition.
"As this does not affect
production in the short term, we believe this does not impact short term
prices much, but could influence sentiment negatively, which explains
the modest price decline today," said Bjoernar Tonhaugen, head of oil
markets at Rystad Energy.
Saudi Arabia had signaled its intention to go all-out for market share over the weekend after the
acrimonious collapse of an alliance with Russia that had restrained oil supply in recent years, keeping a floor under prices.
Brent
crude futures, the global oil benchmark, and US oil were both trading
about 3% lower on Wednesday. Brent prices have fallen by about 28% since
Thursday, and 48% since a peak in early January.
OPEC,
led by Saudi Arabia, had proposed additional production cuts through
the end of 2020 but Russia refused to agree and warned it would produce
as it pleases from next month in a bid to recover market share lost to
US shale companies in recent years.
The
falling out has opened the door to a free-for-all fight for customers
just as the oil industry faces its biggest challenge since the global
financial crisis. The coronavirus epidemic is destroying demand for fuel
as air travel slumps and as efforts to contain the spread of the
disease force businesses to close, at least temporarily.
Saudi
Arabia told its preferred customers over the weekend that it would cut
its official selling prices by $6 to $8 a barrel. Other members of OPEC
are now piling in. ADNOC, the UAE's state oil producer, said Wednesday
it was ready to supply 4 million barrels per day in April, up from about
3 million at present.
"In
addition, we will accelerate our planned five million barrels per day
capacity target," it said in a statement. It had been aiming to hit that
target by 2030.
Russia shows no
sign of blinking in the standoff with its erstwhile OPEC allies, as it
sees an opportunity to undercut American energy dominance. The United
States has supplanted Russia as the world's biggest oil producer thanks
to the recent shale boom.
"Saudi
Arabia announced that it had reduced the prices ... announced the
increase in oil production. We believe that in these conditions this is
probably not the best option," Russian energy minister Alexander Novak
told state media on Wednesday. "It would be right to keep the production
at the levels achieved in the first quarter."
Now, the energy meltdown threatens to
cause a repeat of the 2014-2016 crash that bankrupted dozens of oil and
gas companies and caused hundreds of thousands of layoffs.
It
could also seriously damage countries such as Iraq, Angola, Nigeria and
Algeria at a time of mounting concern about the health of the global
economy because of coronavirus.
Fatih
Birol, head of the International Energy Agency, told CNN Business on
Tuesday that producers should stop playing "Russian roulette" with the
oil market because it could have "grave consequences."
"The
only thing I would hope, that in the oil markets, common sense will
prevail and all the actors behave responsibly as the world is facing
major challenges today," he told CNN Business' Richard Quest. "Weak
economy and the coronavirus is a problem for all of us. If they don't do
it, the citizens of this world will not forget it."
— John Defterios and Matt Egan contributed to this article.
