Late last week, talks between oil cartel Organization of Petroleum Exporting Countries (OEPC) and Russia collapsed as the two sides failed to agree on an output cut deal. This pushed Saudi Arabia, the worlds largest oil producer, to cut its crude prices and announce increase production leading to a mayhem in an already over supplied oil market.
Reports suggest that at the Vienna meeting between oil producers on Friday, Russia's energy minister Alexander Novak told his Saudi Arabian counterpart Prince Abdulaziz bin Salman that Russia was unwilling to cut oil production further. The Kremlin had decided that keeping oil prices steady in market ravaged by further shrinking of demand on coronavirus spread, would be a gift to the US shale industry.
The Russian thinking, as per reports, was that the frackers in US had added millions of barrels of oil to the global market while Their own companies compressed production. It was time to squeeze the Americans now.
For last few years, US had become a major player in the oil export market and its share in global trade has been rising though overall it still remains a small player. But for US to remain a serious oil player in the export market, prices of global oil has to be above a threshold of day around $50 barrel. Analysts said that Russian thinking on US shale is not completely misplaced but this was not the tune to trigger an oil price war and instigate Saudi Arabia that has also suffered heavily due to low oil prices.
After the OPEC-Russia talks failed, crude went on plunge losing over 30 per cent in just two days.
Crude is trading down 22 per cent to $32 a barrel. Brent crude, the global benchmark, has also plunged 22 per cent to $35 a barrel. Both oil contracts are on track for their worst day since 1991 Gulf War.
US oil prices crashed as much as 27 per cent to a four-year low of $30 a barrel.
The fear in the market now is that oil prices may crash further as Saudi Arabia is taking aggressive stance and is expected to flood the market with crude in a bid to recapture market share. Analysts have said that Saudi Arabia had slashed its April official selling prices by $6 to $8 a barrel in a bid to retake market share and heap pressure on Russia.
The OPEC plus deal on production cuts announced last year was never popular with Russian oil industry Igor Sechin, the powerful boss of Rosneft and a long-time Putin ally, strongly opposing cuts rather pushing up production to keep their market share intact.
The Kremlin was also disappointed the alliance with Riyadh hadn't yielded major Saudi investments in Russia, news reports suggested.
For several months, Novak and his team had been telling Saudi officials they liked being in the OPEC plus alliance but were reluctant on more production cuts. In fact, at December's OPEC meeting Russia participated in production cut decision but shouldered lesser responsibility with bulk falling on Saudi Arabia.
With string positions taken by Saudis and the Russians, analysts said it would be interesting to see how long and how deep the bloodbath in oil market continued.