Saudi Arabia pricing the crisis: No return to negotiations

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Saudi Arabia has priced in the “oil war” that began after Russia refused an additional rationing in production that reduces its share in an already volatile market, due to the outbreak of the “Corona” epidemic. By escalating the confrontation with the Russians and rejecting the Moscow proposal for new talks that the latter hinted at, Riyadh has taken an additional step on the path to the market share battle, which beset the “Coffid-19” scar, with international crude prices. A step towards which the Kingdom intends to raise its maximum production capacity from 12 to 13 million barrels per day after it reduced the prices of oil put up for sale to record levels in an attempt to acquire a large market share, in parallel with its ally the UAE’s assertion of its readiness to increase its supplies from 4 to 5 million barrels. New losses on the two exchanges, while oil prices tumbled again. By this, the two Gulf countries have adopted a unified stance towards the confrontation with the Russians, through their decision to pump additional quantities equivalent to 3.6% of global supplies, which will enter the market at a time when global demand for fuel is expected to shrink for the first time in 10 years.

Saudi Arabia’s move to fuel the price war by raising its production capacity to 13 million barrels. It was preceded by a single day announcing an increase in its production from the current level of 9.8 million barrels to 12.3 million barrels per day in April (including 300,000 barrels per day above its maximum production capacity). It led to a decline in the price of “Texas” crude by 1.7% to reach 33 dollars, while Brent crude fell by the same percentage to 36 dollars. While the increase in production capacity usually requires years and investments in the billions of dollars, Aramco President, Amin Al-Nasser, said that the company is “working with all its capabilities to speed up the implementation of this approach”, without specifying a timetable for that. This comes after US President Donald Trump discussed “global energy markets and other issues” with the Saudi crown prince, Mohammed bin Salman, on the same day that the markets opened to a record collapse in oil prices by 25%, and launched panic sales in The US stock market and others are already suffering damage due to the Corona outbreak. As the White House made do with a brief statement on that conversation, the steps that followed followed the Kingdom’s determination to continue the price war, especially with its refusal to hold new talks with Moscow.
In light of this, the Energy Minister, Alexander Novak, confirmed that his country is conducting numerous phone calls with OPEC and non-members, but none of the partners approved the Russian proposal to keep the existing oil production cuts unchanged (2.1 million barrels per day). The UAE, for its part, which entered the confrontation line yesterday, announcing its readiness to increase its oil supplies by about one million barrels per day in April, called its Energy Minister, Suhail Al Mazroui, to a “new agreement” between the countries of “OPEC” and Russia “to maintain Market stability.
Analysts believe that Saudi Arabia cannot survive this situation for a long time, as it requires, according to the International Monetary Fund, $ 80 a barrel to control the 2020 budget, which has an estimated deficit of $ 50 billion, while Capital Economics expected it, for its part , That the percentage of the expected deficit in the Saudi budget for the current year in the GDP increase, from 6% today to more than 15%. To reduce the repercussions of the price war, Riyadh asked government departments to submit proposals to reduce their budgets between 20% and 30% for the current year, in new austerity steps to confront the sharp drop in oil prices, according to sources reported by Reuters, and indicated that this request It was sent more than a week ago due to concerns about the impact of the Corona virus on crude markets, and given its expectation of tough talks with the Russians to deepen production cuts.





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