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Monday’s oil market crash left the Brent crude price hit its multi-year low as Saudi threatened to open its oil production taps to the tune of 12.3 million barrels per day from April 1. Russia’s energy ministry is likely to hold a meeting with the Russian oil companies later today.
On Monday, March 9, oil markets came crashing down 30% registering its worst-ever fall after 1991. The Brent crude price in the international market dropped to $30 per barrel after Saudi Arabia increased production amidst failed talks among the OPEC+ countries last week.
However, the oil indexes recovered on Tuesday, after Russia showed its willingness for further possible talks. Russian Energy Minister Alexander Novak said that Moscow doesn’t rule out any measures with the OPEC to stabilize the oil markets. With this, the International Brent crude price surged 8.5% going at $37.32. Similarly, the U.S. West Texas Intermediate (WTI) surged 8.5 % and stood at $33.69.
As per the Reuters report, Russia’s energy ministry is likely to hold a meeting with the Russian oil companies later today. As per the current understanding, the curbs on oil production output shall be lifted From April 1. This will come after the ending of the existing deal between the OPEC and the non-OPEC allies.
Saudi Arabia and Russia Trigger Oil War
With the non-agreement between the two parties to control the oil production output, both – Saudi and Russia – are likely to significantly accelerate their outputs. Amin Nasser, CEO of Saudi Aramco said that the Kingdom plans to supply a record 12.3 million barrels per day in April. This is like 20% up from its current production levels of 9.7 million barrels per day.
Similarly, Russia is likely to boost its output by up to 300,000 barrels per day. The Reuters report says that Russia has the capacity to increase its oil output to as much as 500,000 barrels per day. The travel industry has taken a significant hit after rising cases of coronavirus recently. This has already created a subdued demand for oil in the global market. Now this overproduction amidst slowing oil demand can further hamper the oil market. RBC head of commodity research Helima Croft told CNBC:
“We could be in a situation where Saudi ramps up production, and the Russians raise production, so in that type of situation when there’s so much concern about demand this would be a really negative impact for oil prices. I think we would be talking about oil in the $20s in such a scenario”.
Adding millions of barrels despite the crashing demand for oil is unprecedented, says Croft.
U.S. Prepared for Any Volatility in Oil Market
With the oil prices crashing on Monday, the U.S. Department of Energy said that the Trump administration is observing the situation. It also added that the U.S. is quite well-off to deal with this market volatility.
“These attempts by state actors to manipulate and shock oil markets reinforce the importance of the role of the United States as a reliable energy supplier to partners and allies around the world. The United States, as the world’s largest producer of oil and gas, can and will withstand this volatility. The growth of the unconventional oil and gas industry in the United States has led to a more secure, resilient and flexible market,” reads the statement from the department.