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Saudi adopts ‘shock and awe’ tactics against rivals in the oil market

March 10, 2020 at 3:04 pm

Saudi Aramco logo. [Notizie Economiche/Twitter]

Saudi Arabia, the world’s top oil exporter, plans to raise its crude oil production to 12.3 million barrels per day (bpd) next month marking a dramatic escalation in its price war following the collapse of a production agreement between OPEC and Russia.

The hike in production will arrive when the current agreement expires at the end of March.

The level is more than 2.5 million barrels a day above what it was previously producing and greater than Saudi Arabia’s maximum sustained production capacity which, according to the Financial Times, suggests that the kingdom will take barrels from storage to flood the market rapidly as it takes on rivals in a fight for market share.

The kingdom is pursuing a “shock and awe” strategy, according to market experts who believe that Riyadh is seeking to demonstrate it had the capability to raise supply faster than any other producer. Others have dubbed this move as “the oil market equivalent of a declaration of war”.

READ: OPEC’s pact with Russia falls apart, sending oil into tailspin

Oil prices crashed as much as 30 per cent on Sunday evening following Riyadh’s decision to launch a price war against its rivals by increasing output, despite the global economy weakening dramatically and demand for oil crashing as a result of the coronavirus outbreak.

“It is very rare for a demand collapse to coincide with a supply surge,” said a market analyst in the FT, who believes that “the price collapse has just begun.”

The aim of the Saudi move is thought to be an attempt to take on its main rivals in the oil market and punish Russia in a fight for market share.

A price war is expected to not only squeeze Russia, it will also apply pressure on other high-cost producers in the US shale sector, whose growth over the past decade had brought Moscow and Riyadh together.

READ: What does the plunge in oil prices mean for the Arab world?