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2020 Russia–Saudi Arabia oil price war

According to : - wikipedia.org

On 8 March 2020, Saudi Arabia initiated a price war with Russia, triggering a major fall in the price of oil, with US oil prices falling by 34%, crude oil falling by 26%, and brent oil falling by 24%. The price war was triggered by a breakup in dialogue between the Organization of the Petroleum Exporting Countries and Russia over proposed oil production cuts in the midst of the 2019–20 coronavirus pandemic. Oil prices had already fallen 30% since the start of the year due to a drop in demand. The price war is one of the major causes of the currently ongoing global stock market crash.

Beginning in 2014, U.S. shale oil production increased its market share; as other producers continued producing oil, prices crashed from above $114 per barrel in 2014 to about $27 in 2016. In September 2016, Saudi Arabia and Russia agreed to cooperate in managing the price of oil, creating an informal alliance of OPEC and non-OPEC producers that was dubbed "OPEC+." By January 2020, OPEC+ had cut oil production by 2.1 million bpd, with Saudi Arabia making the largest reductions in production.

As a result of the 2019–20 coronavirus pandemic, factory output and transportation demand fell, bringing overall demand for oil down as well, and causing oil prices to fall. On 15 February 2020, the International Energy Agency announced that demand growth would fall to the lowest rate since 2011, with growth falling by 325,000 barrels per day to 825,000 barrels per day, and a contraction in consumption by 435,000 barrels per day. Although demand for oil was falling globally, a drop in demand in China's markets, the largest since 2008, triggered an OPEC summit in Vienna on 5 March 2020. At the summit, OPEC agreed to cut oil production by an additional 1.5 million barrels per day through the second quarter of the year (a total production cut of 3.6 million bpd from the original 2016 agreement), with the group expected to review the policy on 9 June during their next meeting. OPEC called on Russia and other non-OPEC members of OPEC+ to abide by the OPEC decision. On 6 March 2020, Russia rejected the demand, marking the end of the unofficial partnership, with oil prices falling 10% after the announcement.

In February 2020, the Trump administration put sanctions on Russia's largest oil company Rosneft. Russia may have seen the oil war as a way to retaliate against U.S. sanctions, some media outlets claim.

How America can fight back in the oil war with Russia and Saudi Arabia

According to :- edition.cnn.com

America's oil industry is getting crushed by the historic collapse in oil prices orchestrated by Saudi Arabia and Russia. And President Donald Trump is torn about just how to react to the era of ultra-cheap oil.

Trump has in the past hammered OPEC for keeping oil prices too high, hurting American drivers when they fill up their gas tanks.

Now, Russia is intentionally tanking prices in a bid to derail the US shale oil boom. And Saudi Arabia is punishing Russia by ramping up production at the worst possible time.

The severe nature of the oil crash and America's newfound role as the world's leading oil producer has shifted Trump's calculus.

An epic battle for oil domination between Russia and Saudi Arabia has amplified the coronavirus mayhem on Wall Street. Oil prices are in free-fall, crashing to 18-year lows this week. Energy stocks are crumbling. And energy junk-bond yields are spiking.

To survive, the US oil industry is slashing spending, cutting dividends and preparing for layoffs.

Countless workers, many of them in Republican-leaning states like Texas, could lose their jobs. Some shale oil drillers that took on too much debt won't survive at all.

"You always get a little torn," Trump said during a press briefing Thursday. "Until we became the leading producer, I was always for the person driving the car and filling up the tank of gas...If (prices) were too high, I would always raise hell with OPEC."

Now Trump, under pressure from some oil companies, has signaled a willingness to step into the middle of the Saudi-Russia battle.

"It hurts a great industry and a very powerful industry," Trump said. "At the appropriate time, I'll get involved."

According to : - foreignpolicy.com

No End in Sight to the Oil Price War Between Russia and Saudi Arabia

Russia and Saudi Arabia, two of the world’s biggest oil producers, are each making a bet that they are better placed than the other to bear the pain of the oil price war that they set off over the past week—and that they can get what they want as a result.

That raises two big questions: Are they able to stand the pain? And what exactly do they want?

One week ago, as Saudi Arabia and other big OPEC countries and Russia gathered in Vienna to plan production cuts that could put a floor under falling prices due to the outbreak of coronavirus, crude was trading at more than $50 a barrel. That’s when Moscow decided to blow up a three-year-old pact to manage global oil supplies, refusing to sign on to Saudi Arabia’s proposed cuts, sending the price of oil sharply down.

Riyadh responded not with unilateral cuts of its own but in the opposite direction: It slashed selling prices for its oil and later announced plans to massively increase oil output, further driving down the price of oil that was already plunging due to the disease outbreak and its toll on the global economy. Oil trades today around $33 a barrel.

For Russia and Saudi Arabia, both more or less dependent on oil sales to fund their national budgets, it was—and still is—a dangerous game of chicken.

Russia figured that it could afford to walk away from its informal cooperation with Saudi Arabia and other OPEC countries, even if that meant crashing the price of oil, for a few simple reasons. First, it has tucked lots of money away in the years since the last oil-price crash, giving it a big financial cushion. Second, the biggest losers in any oil-price war, Russia figures, will be high-cost U.S. shale producers; driving the price down would both inflict economic harm on the United States and undermine its ability to wield its favorite tool of international coercion: sanctions.

“Russia is better positioned to survive this crisis,” said Sofya Donets, the chief Russia economist at Renaissance Capital and a former senior Russian central bank officer.

“Russia is better positioned to survive this crisis,” said Sofya Donets, the chief Russia economist at Renaissance Capital and a former senior Russian central bank officer.

 “It will be tough, but they have enough resources to pull through.”

Russia has spent the last five years tightening its budget and building up $550 billion in reserves that officials say will let it cope with oil prices between $25 and $30 a barrel for up to a decade, if need be. On Monday, Russia’s finance ministry said that it would draw from its $150 billion national wealth fund in order to supplement the budget even if oil prices stay low. If crude sells for an average of $27 a barrel—it was in the low-$30s most of this week—Russia would need to draw $20 billion a year from the fund to balance the budget.

That war chest is the result of Moscow’s decision to restructure its economy after it was pushed into recession in 2015—following the last big one-two punch of Western sanctions over the annexation of Crimea and OPEC’s decision to open the spigots the year before. While efforts to diversify away from hydrocarbons have largely fallen flat, Moscow has emphasized stability over growth in recent years, and in many ways it is now in a better position to weather the current shock than it was the last time around.

There is one problem, though: Russian President Vladimir Putin needs to spend more. Putin rode the oil boom of the early 2000s to a strong economy and huge popularity—but that’s a harder act to maintain when oil prices plummet. With economic growth a focal point of Putin’s current presidential term—and with his time in office now possibly extending until 2036—big increases in infrastructure investment and social spending are central to his future and key to promises to help turn around long-stagnant living standards. Lowered incomes and austerity have been the source of his falling popularity and a key factor behind a January government reshuffle that saw Dmitry Medvedev pushed out as prime minister.

Before oil prices collapsed, the government planned to tap the wealth fund to help drive a slew of projects central to its growth agenda. But a prolonged oil price war could force them to go back to the drawing board.

To know more about Visit Websites

1. wikipedia.org

2. edition.cnn.com

3. foreignpolicy.com