“The Saudis once again proved that they are the rulers of the oil market”
The decision seems illogical. As global demand for oil has plunged — especially in China, where imports have sunk 20 percent since the coronavirus outbreak — a cut in production would raise prices, offsetting losses.
And that’s precisely what Saudi Arabia proposed when members of Opec Plus met in Vienna on March 5. But there was one problem: Russia, the “plus” in Opec Plus, would not agree. For a few years now, Russia and Saudi Arabia have coordinated oil prices closely, a partnership between the world’s second and third largest producers. But for reasons not entirely clear, Russia refused this latest cut in production. Speculation for Russia’s moves centers around internal politics in Moscow, where the state’s largest oil producers have long opposed coordination with Saudi Arabia, and the government’s bet that it might be able to corner what remained of the Asian market.
In response to Moscow’s decision, Saudi Arabia did a 360, vowing to raise production levels and flood the world with cheap oil. It directly offered a deep discount to customers in Europe, Russia’s biggest market.
The immediate effect was a 30 percent drop in oil prices. Then, last Thursday, during the worst day in the US stock market since 1987’s Black Monday, oil prices slid another 20 percent, translating into a 50 percent drop since the start of the year.
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