US, WASHINGTON (ORDO NEWS) — Mamdouh Salameh, a visiting professor of energy economics at ESCP Europe’s European business school, noted that Riyadh will no longer be able to continue the oil price war he entered into with Moscow. “Saudi Arabia, having convened an emergency OPEC + meeting under pressure from US President Donald Trump, admitted that she lost the price war in Russia,” the expert said.
Oil provides 90% of the Saudi budget’s revenues, and the war that Riyadh is waging with Moscow will ultimately turn against itself, Salama said in an interview with Anadolu.
According to the expert, because of the new type of coronavirus epidemic (COVID-19), there is a drop in global oil demand by 20 million barrels per day, the Russian economy can cope with oil prices at $ 25 per barrel, and Saudi Arabia, in order to to balance the budget, we need oil prices of 85-91 dollars per barrel.
The cost of production of Saudi Aramco is $ 28 per barrel, while Russian companies produce $ 2.5 per barrel cheaper, Salam said. “Riyadh could no longer continue this war,” the expert said. “Saudi Arabia, having convened an emergency OPEC + meeting under pressure from US President Donald Trump, admitted that it has lost the Russian oil price war.”
Noting that in the current situation there are three obstacles to OPEC +’s cooperation, Salama continued: “Firstly, no matter how much production is reduced while the COVID-19 epidemic continues, this will not have any positive effect on oil prices. The downward trend will continue.
On the other hand, Moscow and Riyadh, forced to cooperate for economic and political reasons, will not reduce production by more than 10 million barrels per day. Russian oil companies may postpone their plans to increase production by 300-500 thousand barrels per day, but this situation will not suit Riyadh. Finally, one of the main reasons that prompted Russia and Saudi Arabia to reach an agreement was that the United States continues to recklessly produce a lot of oil in order to set the tone on the world oil market. “This position of the United States takes into account the economies of these two countries and makes useless agreements to reduce production.”
“The most realistic way to a solution: negotiations between Moscow and Riyadh”
And the director of the Russian National Energy Security Fund, Konstantin Simonov, noted that neither Russia nor Saudi Arabia can predict the pace of the current fall in oil prices, while the Russian side tentatively assessed the consequences of terminating the OPEC + deal.
Earlier this year, Russian Finance Minister Anton Siluanov said that “even with an oil price of about $ 30 per barrel, Russia will be able to finance current budget expenditures,” the expert drew attention. “Moscow was ready for a scenario in which the price of oil under the influence of the termination of the OPEC + transaction would be at least $ 30 per barrel, but prices below $ 30 were the result of an unpredictable outbreak of COVID-19,” continued Simonov. “Therefore, I think that current oil prices were a surprise to the Russian government, and the same goes for Saudi Arabia.”
Stressing that Riyadh decided to terminate the agreement before April 1, the official date for its termination, Simonov said: “Saudi Arabia, refusing to cooperate, launched a price war against Russia. She officially announced that she will continue this policy, and now she is trying to change the situation.”
In the context of a rapid drop in demand, the threat of increasing physical production is not an effective tool for pressure on the market, and political tools have been used instead, Simonov emphasized. “The best scenario for both sides is to end this crazy war and, of course, return to the negotiating table. Because there will be no winners in this war. Riyadh is also preparing for this,” said the expert.
Noting that with the entry into the price war with Moscow, Riyadh launched a process that is fraught with high risks for himself, Simonov continued: “Riyadh showed a very aggressive policy. He tried to provide discounts to European consumers, to increase both production and export. And this situation is a big problem for the oil industry in many countries. If this process continues, then first of all we will see the collapse of the most fragile countries – oil exporters.”
At a meeting on March 6 in the Austrian capital, Vienna, the OPEC + group, which brings together the Organization of Petroleum Exporting Countries (OPEC) led by Saudi Arabia and some countries that produce oil and are not members of OPEC, led by Russia, was unable to decide on an additional reduction in production, as a result of which Riyadh and Moscow announced their intention to increase production volumes, starting in April, to increase their shares in the world oil market. This marked the beginning of a price war between the two countries.
On April 2, Saudi Arabia convened OPEC + countries for an emergency meeting to conclude a “fair agreement.” The Ministry of Energy of Azerbaijan stated that the meeting will be held on April 6 via videoconference, and Kremlin spokesman Dmitry Peskov said that the meeting was rescheduled for April 9.
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