Oil prices collapsed as fears of a rapidly spreading coronavirus and the intensification of a price war overshadowed the obligations of large economies to implement stimulus measures.
In recent days, oil has fallen to almost a 17-year low, given that travel restrictions and other measures to combat the coronavirus reduce demand, and major producers, Saudi Arabia and Russia, are in a state of price war.
Both major contracts faced new sales after Riyadh announced it plans to increase exports to 10 million barrels per day.
The world’s largest exporter said it intends to release an additional 250 thousand barrels of oil per day for export, using gas for domestic consumption.
On Wednesday, there was a slight increase in commodities after the governments of the United States and Europe announced that they would introduce additional incentive measures and the United States would offer a help package worth more than $ 1 trillion.
“The price war of producers and the exponential growth of countries that close their borders have poured all hopes for recovery,” said Jeffrey Halley, senior market analyst at OANDA.
A price war began last week after OPEC’s leader, Saudi Arabia, pushed the informal alliance of major oil producers to reduce production to combat the impact of the virus outbreak on prices.
But the alliance partner, Russia, which is not a member of OPEC, the second largest oil producer in the world, refused. This forced Riyadh to carry out a massive reduction in prices, promising to increase production.
– Huge losses –
Saudi Arabia is preparing for huge losses: the largest economy in the Arab world closed cinemas, shopping centers and restaurants, stopped flights, suspended the year-round pilgrimage to Umrah and closed the eastern region of Katif, where about 500 thousand people live, in an attempt to curb coronavirus.
“The crisis is now. Everything is unpredictable. We must prepare for the worst,” said one of the Saudi civil servants, explaining why he began to convert part of his salary into US dollars and gold coins.
The Central Bank does not pay attention to the fact that the fall in oil prices negatively affects the currency of the kingdom, which for decades has remained pegged to the US dollar.
Many civil servants fear that government benefits will be cut amid rising costs of living.
Some Saudi residents are concerned that recruitment will stop in the public and private sectors, given the high unemployment rate.
Saudi students are worried that the government will stop giving government scholarships to study abroad.
The Ministry of Finance has instructed government agencies to submit proposals to reduce spending this year by 20-30%, according to an analytical note by Nasser Saidi & Associates.
“A number of projects will probably be postponed, the signing of contracts will be delayed,” the note says.
According to the Energy Intelligence Group, the kingdom is preparing budget scenarios in which oil prices can drop to $ 12–20 per barrel.
“Public confidence is directly dependent on the level of government spending and oil sentiment. Both of them are falling. We don’t know whether we will work tomorrow,” said an expert advising the Ministry of Saudi Arabia on a major project.
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The article is written and prepared by our foreign editors from different countries around the world – material edited and published by Ordo News staff in our US newsroom press.