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Despite the pressure from Washington, Saudi Arabia and Russia failed to come into a common agreement of oil supply cut to stabilize the price. The crude oil price has dipped to its lowest in 17 years. Oil is trading at $23.03 on Monday morning.
The oil industry is being pushed to a turf corner by the ongoing coronavirus pandemic and Saudi Arabia-Russia oil production cuts war. On Monday morning during the early Asian hours, oil prices fell to the lowest level in more than 17 years, to trade at $23.03. Reciprocating to more than 6% fall from Friday’s price level.
Saudi Arabia- Russia Oil Production Cuts War
The fall is being attributed to Saudi Arabia – Russia cold oil war, which has seen the two oil giants not agree on supply cuts. As on Friday, the two countries were in a stalemate with no country initiating a talk. Saudi Arabia was quoted saying that it was not in talks with Russia to stabilize the oil supply and price.
The war began a few weeks ago when the two countries, Saudi Arabia OPEC and Russia non-member, failed to agree on the production cut. Whereby, OPEC was pushing for an additional production cut of around 1.5million barrels per day. The recommendation was scheduled to start from April and extend until the end of the year. However, Russia, which is a huge oil producer, declined the additional cut but instead increased their production to cater for the low prices.
To make matters worse for the oil industry, Saudi Arabia has, in turn, signaled to flood the market with its crude oil. The Middle East oil producer giant announced massive discounts to its official selling prices. As a result, smaller oil producer countries are likely to be hit most by the move.
An official from Commonwealth Bank of Australia Vivek Dhar stated:
“We think oil supply from the U.S., Canada and China are the most likely to be curtailed at low oil prices. U.S. oil production cuts are expected to be the most significant. The plunge in U.S. oil rigs last week signals the pressure facing the U.S. shale oil sector.’
Coronavirus Impacts Oil Industry
The ongoing coronavirus pandemic has been the primary source of problems in the oil industry. This is because more than 3 billion people worldwide are on lockdown to prevent further spread of the virus. As a result, the transport industry is on halt with most international flights being canceled, and the global demand has been declining with the pandemic.
With low oil prices, the consumers are going to opt for it instead of alternatives like solar energy and electric motors. The ripple will be felt in their stock market that will dip further as a result of low global demand.
On the brighter side, the winners of low oil prices will be the industries that rely on it to run their daily operations. The cost of production will come down and in turn, the consumer might feel the effect later on.