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Saudi Arabia vows to up oil output, crude oil prices slide about 30%

Saudi Arabia vows to up oil output, crude oil prices slide about 30%
Saudi Arabia vows to up oil output, crude oil prices slide about 30%
World’s leading oil exporter, Saudi Arabia has recently announced plans to up its oil production, starting April 2020. According to reports, brent crude futures, following this announcement, was observed to plunge by almost 30% to US$31.02 a barrel in chaotic trade, apparently the worst one-day fall for brent since the first Gulf war in 1991. Meanwhile, the US crude fell by 27% to US$30, cite reports.

Helima Croft, Head of Global Commodity Strategy, RBC Capital Markets, said that the price action seen recently puts a risk on the fiscal health of a large number of Russian oil producers. It would likely lead to budget cuts and increased debt loads at the event of a prolonged period of low prices. Meanwhile, for many economically and politically fragile producer states, the reckoning could be critically impactful.

Reportedly, the announcement made by Saudi Arabia’s state owned oil corporation, Saudi Aramco, is claimed to be in response to Russia rejecting to join an Opec plan to reduce supplies. As per Aramco’s plan, it will boost its crude oil production to above 10m bpd (barrels per day) next month following a previous agreement to cut supplies agreed by Opec and Russia which expires by March end.

Reliable sources predict that higher oil production and low offered prices by Aramco could push world oil prices further down, impacting countries that significantly rely on oil exports for foreign exchange and tax income.

Moreover, the new strategy seems to target Russia and US shale oil companies that are known for offering high production costs and losing money when the prices of crude oil fall below US$50 a barrel for a few months.

Notably, Opec producers like Kuwait, Iraq, and UAE are also expected to follow Saudi Arabia’s trail with increased production and price cuts starting April.

Source Credit: https://www.theguardian.com/business/2020/mar/08/oil-price-to-plunge-as-much-as-20-as-saudis-vow-to-step-up-production