Faced with the coronavirus, the breakdown of the OPEC + alliance causes an oil crash

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By: Claire Fages Follow

Saudi Arabia has decided to sell off its oil following Russia's refusal to cut production. Already weakened by the coronavirus, crude oil prices collapsed Monday, March 9.

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We had not seen such a plunge in crude oil prices since the first Gulf War: minus 30% in Asia Monday, March 9. While the coronavirus is weakening oil demand - it is expected to drop this year for the first time since the financial crisis, according to the International Energy Agency (IEA) - Russia has not wanted to extend beyond the end of March the production reduction agreement in force since 2016 with OPEC. In response, Saudi Arabia decided over the weekend to increase its production by one million barrels per day and to lower the price of its barrels by 7 to 8 dollars from April.

Price war lost in advance

It's the return of the price war: each for himself and his market share. " A real ultimatum from Saudi Arabia to Russia ", judges the director of the weekly Pétrostratégie, Pierre Terzian. Russia has been less inclined to cooperate with Riyadh since it successfully consolidated in the Middle East. But according to this expert, " this price war is lost in advance: Saudi Arabia already failed in the mid-1980s against the North Sea oils, then in 2014 against the American shale oils. And Moscow does not like ultimatums ”.

Lose-lose game

“ It's a lose-lose game , adds Philippe Sébille-Lopez, from Géopolia. The increase in Saudi volumes will be far from compensating for the drop in prices . ” Russia will also suffer, even if it depends less than Riyadh on oil to fuel its budget. And what about Iraq, Iran or Venezuela.

Reduced investments in Africa

The oil companies, whose action has plunged, will have to cut into their investments, especially in Africa. However, Angola is already struggling to maintain its production. Nigeria has committed to the biggest budget since the return of democracy, despite an external debt of 25 billion dollars. In West Africa, projects could be delayed, postponed or even canceled.

Shale oil threatened

Shale oils are also threatened. If the price per barrel remains permanently below 40 dollars, American companies, over-indebted, will not rise as after 2014: investors will no longer respond. The accelerated decline in US production would then be the only source of satisfaction for the Saudis and the Russians.

► Oil : Moscow displays its confidence in the standoff that opposes it in Riyadh

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