Russia-Saudi Oil Price War: The Worst may Be yet to Come

Saudi Arabia is pricing the crisis, but going back to the negotiations table may be difficult.
The global crude supplies are entering the market at a time when global demand for crude has contracted for the first time in 10 years.
By entering into a fierce oil war, Saudi Arabia aims to deliver “double fatal blow” to Russia and the Shale producers, based in the United States.
Russia has refused to abide to an agreement, which seeks to raise crude prices by reducing production by 1.5mn barrels per day.
On the other hand, producers of shale oil, mostly based in the US, have flooded markets with more than 2mn barrels per day. This has resulted in lower prices due to a glut in the global energy markets. With global oil production now exceeding demand, I expect Saudi Arabia and UAE, both OPEC producers, to pump more oil to acquire market share.
Given that OPEC countries now have very little incentive to curb production, oil markets appear to be overcrowded.
Overall, oil prices were at these levels in January 2016 and are close to their lowest level in 16 years.
The markets were shocked by the dispute between Saudi Arabia and Russia over production cuts, which the United States overlooked last year as the world’s largest producer. This reality represents the collapse of the OPEC/non-OPEC coalition, a major shock to the oil market.
And it coincides with an additional challenge, which is that we do not know the full picture of what is coming. We expect oil price to come further down to less than $25/barrel this month, and therefore, the prices of all products and commodities will get declined. The challenge now is – either survive or collapse.

About Parvin Faghfouri Azar

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