Dubai, Mar 9: The eyes of the world will be on the oil markets when the big trading hubs in Europe and North America open following the end of the deal between Saudi Arabia and Russia that has helped to sustain crude at relatively high levels for the past three years.
There were big falls on Friday when ministers from the Organization of the Petroleum Exporting Countries (OPEC) failed to get a deal with non-OPEC members — the so-called OPEC+ — to extend output agreements. Brent oil was down nearly 10 percent at $45.27 going into the western weekend.
Saudi Aramco took immediate action to cut prices after the OPEC+ collapse, offering big discounts for crude deliveries from next month, when the current output restrictions end.
According to a notification sent to customers by Saudi Aramco, seen by Arab News, the Kingdom’s oil giant will cut between $4 and $8 per barrel, with the biggest discounts being offered to buyers in northwest Europe and the US.
Roger Diwan, an oil analyst at consultancy IHS Market, said: “We are likely to see the lowest oil prices of the past 20 years in the next quarter.”
West Texas Intermediate, the US oil benchmark, fell to $28.27 in November 2001.
The move raises the possibility of a “crude war” between the three biggest oil blocs — the US, Russia and the Arabian Gulf. Some analysts believe the American shale industry is more vulnerable to low prices than either the Russians or the Saudis.
Robin Mills, head of the Qamar consultancy, told Arab News: “I don’t think this was premeditated but Saudi Arabia has clearly swung quickly into action to put the Russians under pressure. But the Russians, with low debt and a flexible exchange rate, can cope with a few months of low prices.”
The boom in US shale has made the country the biggest oil producer in the world, but with high financing costs. Lower global prices would put a lot of shale companies out of business.
On the other hand, American motorists, and President Donald Trump, would be pleased to see lower fuel prices in an election year.
In Moscow, one prominent financier with ties to the Kingdom played down the long-term significance of the Vienna fallout.
Kirill Dmitriev, chief executive of the Russian Direct Investment Fund, told Arab News: “Saudi Arabia is our strategic partner, and cooperation between our two countries will continue in all areas. We will also continue to work within the framework of the Russia-Saudi Economic Council.”
One Russian official, who asked not to be named, added: “There is a good relationship between Alexander Novak, Russian energy minister, and his Saudi counterpart Prince Abdul Aziz bin Salman, and I am sure they will continue talking to each other less formally.”
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