Mar 8, 2020 - Energy & Environment

New aftershocks from Saudi-Russia oil rupture

Photo: Alexey Nikolskey/Sputnik/AFP via Getty Images

Saudi Arabia plans to boost oil output and sharply cut prices, signaling the first response to Friday's collapse of OPEC's production-cutting pact with Russia and allied producers, according to multiple reports.

Why it matters: The unraveling of the OPEC+ agreement, at least for now, and declining oil demand due to the novel coronavirus' economic toll are upending global oil markets and geopolitics.

  • Oil prices plunged by roughly 10% on Friday and could see another sharp decline when Asian markets open Sunday night on the U.S. East Coast.

Driving the news: Saudi Arabia plans to boost production to well over 10 million barrels per day, compared to 9.7 mbd now, when OPEC-Russia output limits expire at month's end, per Bloomberg and Reuters.

  • Bloomberg also reports that the Saudis have privately signaled they could eventually raise output to 12 mbd.
  • "The shock-and-awe Saudi strategy could be an attempt to impose maximum pain in the quickest possible way to Russia and other producers, in an effort to bring them back to the negotiating table, and then quickly reverse the production surge and start cutting output if a deal is achieved," Bloomberg reports.
  • Saudi state oil giant Aramco is also sharply cutting export prices starting next month, including "the biggest cut ever for Arab Light crude for Asia," according to S&P Global Platts.

The big picture: Friday's failure to extend and deepen the OPEC+ production limits marks at least the temporary end of OPEC's three-year joint effort with Russia to tighten markets and prop up prices.

  • The new fight for market share is likely to drive down prices even further, something that will also bring new problems for U.S. shale producers already facing challenging economics.

What's next: Tomorrow morning the International Energy Agency will announce its latest analysis of how much COVID-19 is estimated to curtail global oil demand this year.

Go deeper

The chaotic thaw in oil price wars

Illustration: Sarah Grillo/Axios

Friday morning brought the news that the OPEC+ group will meet remotely Monday to discuss potentially steep production curbs, sending prices upwards on the prospect of easing the global glut as coronavirus crushes demand.

Why it matters: The meeting, reported by multiple outlets, is the second concrete sign in two days of new coordinated efforts since the OPEC+ supply management alliance — led by megaproducers Saudi Arabia and Russia — collapsed a month ago.

Oil prices plunge as market absorbs OPEC-Russia split

A Kuwaiti trader checks stock prices at Boursa Kuwait in Kuwait City, on March 8, 2020. Photo: Yasser Al-Zayyat/AFP via Getty Images

Oil prices nosedived to four-year lows Sunday as trading resumed after Friday's collapse of the OPEC-Russia production-limiting pact, a rupture slated to increase supplies at a time when the novel coronavirus is sapping demand.

The state of play: The immediate 31% collapse when trading resumed last night was the second-largest on record behind the 1991 Gulf war, Bloomberg reports.

OPEC+ meeting reportedly delayed amid fresh Saudi-Russia split

OPEC. Photo: NurPhoto / Getty Images

A pivotal Monday meeting among oil-producing countries to discuss supply curbs is reportedly being delayed amid tensions between Saudi Arabia and Russia, the leading players in the OPEC+ group.

Why it matters: Travel and economic freezes from COVID-19 are causing an unprecedented drop in oil demand that has caused prices to crater.