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Saudi Arabia Is Starting an Oil Price War

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Amid the COVID-19 Coronavirus global pandemic, Saudi Arabia had cut its official selling price (OSP) for April for all crude grades to all destinations by anywhere from $6 to $8 a barrel.

Since the world is facing an unprecedented health crisis, the kingdom has declared it will aim to overflow the world’s demand. On the long term, Saudi Arabia is hoping to win the “war of attrition” against Russia, Brazil and other oil competitors.

But will this strategy prevail? Riyadh already used this in the past, however it did not turn out well.

Did Russia fail Saudi Arabia?

Saudi Arabia had plans for 2020. First off, the kingdom wanted to create an alliance with Russia, in order “to make deep production cuts aimed at shoring up crude prices against the demand destruction unleashed by coronavirus”, reports Al Jazeera.

The failed meeting between Russia and Saudi Arabia led Ryad to start a “price war”, or as several media said “a war of attrition”. On March 9th, US oil prices crashed to a four-year low at $27.34 a barrel.

Answering questions to media state last Wednesday, Russian energy minister Alexander Novak said that: “We believe that in these conditions this is probably not the best option. It would be right to keep the production at the levels achieved in the first quarter.”

Read on Alvexo: “Oil Prices Drop, Jobs Slashed As Coronavirus Expands”

A risky “Russian roulette” for oil

Among the energy experts, oil and gas specialists are fearing a bis repetita from 2014-2016 which forced dozens of companies to shut around the world – and thousands of employees to be laid off.

“Fatih Birol, head of the International Energy Agency, told CNN Business on Tuesday that producers should stop playing “Russian roulette” with the oil market because it could have “grave consequences.”, shared CNN Business last Wednesday.

What’s yet to come?

At the moment Saudi Arabia has slashed its price everywhere from $6 to $8 a barrel. “In addition, we will accelerate our planned five million barrels per day capacity target,” shared UAE’s state oil producer ADNOC in a press release.

“In addition, we will accelerate our planned five million barrels per day capacity target”, read the statement. For Fatih Birol, not only this is a bad timing for Saudi Arabia to start a price war – as coronavirus is re-aligning priorities for many industries.

Also, this position of “war of attrition”, could harm the economy of many developing countries, including, Iraq, Angola, Nigeria and Algeria. However, the Unites States remains the largest oil producer and might have a powerful role to play in the next upcoming weeks.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.