The oil war comes after no agreement between OPEC and Russia has been reached. They are not only the nations that are influenced in this fight.
OPEC revealed on Mar 3 its plan to boost oil production capacity and strengthen themselves in the fight against Russia.
Saudi Aramco Representative said that Saudi Energy Ministry has ordered to raise its oil production capacity up to 13 million of barrels per day, which is seen with an increase of a million barrels a day.
Oil producing nations produce 9.7 million barrels per day during the past months. However, oil storage capacity is definitely available for extra crude reserve.
Saudi crown prince Mohammed bin Salman at a signing ceremony of bilaterally agreed documents after a Russian-Saudi Arabia meeting. Photo: Getty
Cailin Birch, an economist at EIU said that it is “trying to apply maximum pressure on both Russia and the U.S.”
“By sending signals that they will flood the market as soon as possible, they may be hoping to either force Russia back to the negotiating table or to prompt a wave of bankruptcies and investment cuts in the U.S. that would have a noticeable impact on shale production,” Birch said.
On Mar 11, International benchmark Brent crude traded at US$36.05 a barrel, down over 3.2%, while U.S. West Texas Intermediate (WTI) stood at US$33.30 around 3% lower.
Oil prices have gone down to 50% since the start of 2020.
Everything is temporary
An “oil war” has occurred when OPEC and Russia could not reach a bilateral agreement in a meeting last weekend.
Economists have hoped an agreement between Saudi Arabia and Russia, as well as other OPEC and non-OPEC oil producers to restrain oil output and prop prices up.
Analysts believe that the U.S. market is going to to suffer hugest losses.
“The Saudi-Russian relationship is much more important in the light of U.S. energy independence than it was before the rise of the U.S. shale industry,” said a senior analyst at PVM Oil Associates.
Therefore, the current standoff between the second and third oil producers in the world should be temporary.
“A dangerous game”
Saudi Aramco’s announcement comes less than 24 hours after the oil giant announced plans to ramp up production up to 12.3 million barrels per day from April.
Russian Energy Minister Alexander Novak and Saudi Energy Minister Abdulaziz Bin Salman sign documents at a meeting on October 14, 2019. Photo: Getty.
That is despite Russian Energy Minister Alexander Novak leaving the door open for Moscow and Riyadh to return the negotiating table.
According to an unnamed source, also on Mar 11, Russia’s energy ministry is expected to hold a meeting with oil companies of the country.
They are expected to have a discussion on whether to continue Russia’s alliance with OPEC or not. Though Saudi Arabia could probably go on with increasing its oil output till the end of the year, the economy will bear a painful time.
Financialists evaluated that OPEC is trying to shock the market quickly and believed that the situation is going to be more in the coming months.