What messages did Saudi Arabia want to deliver to the world from the declaration of a “price war”?

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After the “OPEC Plus” meeting failed to persuade Russia and its partners to further reduce oil production by 1.5 million barrels, to compensate for the sharp drop in demand due to the outbreak of the Corona epidemic, Riyadh announced a “price war” on Russia, and raised its daily oil production.

This step caused the collapse of oil prices, until it reached its lowest price since the Gulf War in 1991, after losing more than 20% of its price.

The Saudi announcement transformed Moscow and Riyadh into opponents in the war of oil production, and victory over those who sell more oil and seize the largest market share, regardless of price.

The Saudi Energy Minister, Prince Abdulaziz bin Salman, the eldest son of King Salman, demanded that OPEC ministers and producers allied to increase production cuts last December to 1.7 million barrels per day, according to the American CNN website.

The American Network affirmed that Riyadh, at the last meeting in the beginning of this month, sought an additional reduction of 1.5 million barrels, to counter the impact of reduced demand due to the Corona virus.

New strategy

The network quoted a senior OPEC source who attended the meetings that bin Salman also pushed to extend the cuts until 2020 with the support of all OPEC members but without obtaining prior approval from his Russian counterpart Alexander Novak, who announced his rejection of the initiative, after receiving instructions from Russian President Vladimir Putin.

He stressed that producers will be free to make their own productive decisions, which are no longer constrained by the collective approach to market management.

Saudi Arabia has been the architect of production cuts, which has helped support crude oil prices for the past three years, but when Russia refused to increase the cut, the kingdom changed its strategy and announced what was known as a “price war” to regain market share.

The Kingdom started the first steps of this war, by increasing production significantly from April 1 to 12.3 million barrels, and the Saudi oil giant, Saudi Aramco, announced that it would reduce prices to preferred customers.

Saudi messages

With the drop in crude oil prices, the Saudi Energy Minister ordered Aramco to accelerate plans to increase its capacity to 13 million barrels per day by the end of the year, and a country represented in the Abu Dhabi National Oil Company pledged to add one million barrels per day to the market in April, and to intensify plans to expand its production capacity to 5 million barrels per day.

CNN confirmed that the Kingdom wanted to send two main messages to the world, the first is to show its muscles and remind everyone that it is able to control the oil market and absorb any shocks to which the market is exposed.

The second message is that if the energy world is left to the forces of the free market, Gulf producers will be the last to be affected, because extracting crude oil costs them less than any other country.

And they can do this at a much lower cost than US shale producers.

Despite the Saudi war and the damage caused to American companies, the United States is still the largest producer in the world, and in April, Riyadh is likely to come second with Russian production declining slightly, and some believe that the price war will not end until the Kingdom regains the crown of global production .





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