By
Chimamanda U. Martha
May 13th, 2024
Tensions flare up between oil giants Russia and Saudi as the OPEC meeting scheduled today has been postponed to Thursday this week. The U.S. President Donald Trump has personally intervened in this matter, however, there doesn’t seem a concrete outcome at this stage.
Ever since Russia and Saudi Arabia failed to reach a consensus on cutting down oil production, the oil market has gone Hayward. Triggering an oil war, the kingdom of Saudi Arabia has expanded its daily outputs to over 10 million barrels per day. With the COVID-19 lockdown across major economies, oil demand has drastically dropped. On the other hand, the production capacities have shot up resulting in the crash of oil markets.
However, last Friday, the U.S. President Donald Trump told CNBC that Russia and Saudi are working on common grounds. This caused the oil prices to rally 24% in a single day as the market remained hopeful.
But in other bad news, the virtual meeting between OPEC and non-OPEC allies earlier scheduled today has now been delayed. Amidst mounting tensions between Russia and Saudi Arabia, the meeting will now happen on Thursday, reports CNBC. This delay is most likely to create a negative impact on the market, with oil prices crashing again.
After last week’s recovery, oil prices can again crash down starting Monday. Last Thursday, the U.S. oil index surged 25% followed by another 12% surge on Friday. Again Capital’s John Kilduff said:
“It’s probably going to crater. There was a lot of optimism priced into oil Thursday and Friday. With this new Saudi, Russia spat, it doesn’t look like it’s going to come together.”
Will the U.S. Cooperate with Saudi and Russia in Cutting Down Oil Production?
With global trade, travel, and tourism severely impacted by the Coronavirus pandemic, the demand for oil has collapsed in the international markets. The West Texas Intermediate crude stands 40% down over the last month.
Last Friday, speculations were that Russia has agreed with the Saudi to cut the oil production equivalent to 10% of the world supply. Besides, Russian President Vladimir Putin reportedly agreed on cutting down 10 million barrels a day.
The two oil giants – Saudi and Russia have been seeking U.S. intervention and cooperation in balancing the oil supply. On the other hand, American oil producers have been still pumping out at a normal rate. Last Friday, the U.S. oil executives met President Trump at the White House. There was marketwide speculation that Trump might likely ask them on the cuts. But no such agreement came. Reportedly, Trump agreed to the view that market forces shall determine the oil prices.
The White House briefing read:
“These are great companies and they’ll figure it out. It’s a free market, they’ll figure it out.”
Since last month’s failed agreement, both the oil giants have been blaming each other for spoiling the markets. Looking at the current scenario, it looks like the situation would take a long time to settle.
“Now we have two issues. After President Trump’s statement, it seems rather unlikely any production commitment is forthcoming. And it looks like we might have a new diplomatic rift between Russia and the Saudis…The Saudi minister is pushing back furiously on the Russian minister’s assertion that the Saudis are targeting shale,” said Helima Croft, head of global commodities research at RBC.