A Russian-Saudi war shocks the markets


Russia’s breach of its agreement with OPEC to cut oil production prompted a Saudi move and flooded the market, causing a sharp drop in prices and the largest daily drop in nearly three decades.

And after Russia’s agreement with OPEC lasted for about three years, the markets find themselves in a price war that was sparked by Moscow, when it refused to commit to reducing production within a plan proposed by the Organization of Petroleum Exporting Countries last week.

The drop in oil prices caused panic in financial markets, as indicators of several stock exchanges around the world, which were affected by the movements of the oil markets and the consequences of the emerging Corona virus, fell.

The head of the International Energy Agency, Fatih Birol, fears, on Monday, of a “Russian roulette game in oil markets”, warning of “serious consequences”.

A sharp drop in oil prices

A sharp drop in oil prices

Oil prices

Oil prices fell about 30 percent on Monday, after Saudi Arabia lowered its official price for selling crude, and set plans for a significant increase in oil production next month, at a time when the spread of the Corona virus is eroding global demand growth, according to Reuters.

Brent crude futures fell $ 12.23, or 27 percent, to $ 33.04 a barrel, after dropping earlier to $ 31.02 a barrel, the lowest level since February 2016.

West Texas crude fell 11.88 dollars, or 29 percent, to 29.40 dollars a barrel, after touching the level of 27.34 dollars, which is also the lowest level since February 12, 2016.

US crude is likely heading to an all-time low, surpassing a 33 percent drop in January 1991.

Russia refused to commit to production cuts at the last OPEC meeting

Russia refused to commit to production cuts at the last OPEC meeting

Rossi refused to cut production

OPEC has proposed to Moscow and its nine other partners an additional collective reduction of 1.5 million barrels per day so that the spread of the virus does not undermine what was reached in 2017 to maintain stable prices in a market with surplus production, but Russia refused.

In response to the Russian position, Saudi Arabia launched a “price war” on Saturday, reducing its oil prices for sale to its lowest levels, in an attempt to secure a large market share.

Anas Al-Hajji, an expert on oil in the Gulf and residing in Texas, said, “The message that Saudi Arabia wants to send is: Whatever it takes,” but he indicated that cooperation between the oil countries may be restored before the OPEC meetings scheduled in July.

Since the beginning of 2017, OPEC + countries have pledged to cut supplies in the market by 1.2 million barrels per day in order to raise prices. In December, the cartel increased the number by 500,000 barrels per day.

But new, tougher measures are necessary, as oil revenues suffer especially from the rapid slowdown imposed by the emerging Corona virus on the Chinese economy, the first global oil importer.

Fears of dire consequences

Birol, director of the International Energy Agency, said oil prices below $ 25 a barrel would halt new development of shale oil in the United States.

The International Energy Agency announced, on Monday, that the global consumption of oil will decline this year, for the first time since 2009, against the backdrop of the widespread spread of the emerging Corona virus.

In its last report, the International Energy Agency expected the current demand for oil to decrease by 1.1 million barrels per day, in a first scenario, while the virus continues to spread throughout the world.

This means a decrease of about 90 thousand barrels per day, compared to last year, for the first time since 2009.

These expectations are based on the assumption that China will be able to control the virus outbreak by the end of the month, and that measures to contain the virus elsewhere will have little impact on demand, without counting the impact of the price war.

Oil consumption fell in February significantly, and the Agency estimated this decrease by 4.2 million barrels per day compared to the same month last year, and 3.6 million barrels of this decrease in consumption is due to China.

While the International Energy Agency did not provide specific figures for the monthly consumption of oil, it is expected to decrease by about 4.5 percent.

The indicators of most of the Arab and international markets declined

The indicators of most of the Arab and international markets declined

Money markets

And the financial markets in Saudi Arabia and other Gulf countries recorded major losses on Monday, for the second day in a row, against the backdrop of the collapse of oil prices.

The Saudi capital market, Tadawul, the largest in the region, was exposed to severe losses, as the general index fell more than 9 percent at the opening, before settling at a decline of 6.1 percent in the middle of the day.

In the beginning of trading, the value of the share of Aramco, the oil giant, fell by 10 percent, which is a record level, to reach 27 riyals.

Aramco lost on Sunday and Monday more than 270 billion dollars of its value, which has ranged at 1.49 trillion dollars, far from the level of two trillion dollars that Saudi Crown Prince Muhammad bin Salman insisted before listing the company in the market last December.

Aramco’s stock fell Monday below the main offering price of 32 riyals, for the first time since the company was listed on the stock exchange on December 11 in the largest underwriting in history of $ 25 billion.

The losses came as a result of the collapse of oil prices, which fell by more than 20 percent on Monday, which constitutes a painful blow to the Gulf economies that depend on crude as a main source of their revenues.

The budgets of the countries of the region have witnessed a continuous deficit since 2014, due to the decline in prices.

Some also feared the decline in oil revenues and its impact on Iraq, where analyst Hisham Al Hashemi said in a Tweet on Twitter that the decline in Brent crude prices will reduce the country’s revenues to $ 40 billion, which will not be sufficient to cover the annual salary bill, which amounts to $ 53 billion.

And the Kuwait Stock Exchange fell by 10 percent, which prompted the financial authorities to stop trading in it for the second day in a row, while the Dubai market index fell by about 8.3 percent and the Abu Dhabi index fell by 8.3 percent.

The Qatar market index fell by 9.7 percent, and in Oman and Bahrain by more than 5 percent.


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