On March 8, 2020, Saudi Arabia launched a price war with Russia, which facilitated a quarterly drop of 65% in the price of oil. [1] In the first weeks of March, U.S. oil prices fell by 34%, crude oil by 26% and Brent oil by 24%. [2] [3] The price war was triggered by a breakdown in the dialogue between the Organization of the Petroleum Exporting Countries (OPEC) and Russia over planned oil production cuts in the midst of the COVID 19 pandemic. [1] Russia left the agreement, which led to the downfall of the OPEC alliance. Oil prices had already fallen by 30% since the beginning of the year due to a drop in demand. [4] The fight for awards is one of the main causes and impact of the global stock market crash that followed. [5] On 6 March, Saudi and Russian representatives failed to reach an agreement at a meeting in Vienna. “The negotiations have ended, everyone has closed the doors behind him,” Fyodor Lukyanov, Russia`s editor-in-chief in global affairs and well-connected politicians in Moscow`s foreign policy circles, told me. Saudi Arabia responded not only by oil production at its pre-OPEC level, but also by dumping two million barrels of additional oil, which fell at a high price. Oil prices fell by 30% in one day; the ruble has lost ten per cent of its value against the dollar. Yet the prevailing attitude in Moscow in the early days of March was that Saudi Arabia had to fold first.
“Things will be bad for them, but we will be able to hold on,” Lukyanov said, paraphrasing the mood. According to the sources, there is still no agreement on whether an OPEC production meeting is to take place on Thursday, the main obstacle being relations with countries that have not achieved the deep supply cuts required under the existing pact. The latest news about the effectiveness of coronavirus vaccines, which have pushed oil prices to their highest level since their fall in April, may have made it more difficult to reach an agreement. In response to these higher prices, some oil producers saw less need to maintain supply and wanted to increase pumps to try to improve nearly a year with gloomy oil yields. “Any agreement on the extension of the cuts is conditional on countries that failed to fully comply with their cuts in May compensate for their overproduction,” the source said. Perhaps Russia can take solace in the fact that the whole idea of a cartel could soon be overtaken. Finally, Sunday`s agreement aims to reduce global production by 10%, but coronavirus shocks are expected to reduce demand by 30%. If even the largest oil deal of recent times cannot stop prices, what can be done? Under the agreement, members of the Organization of Petroleum Exporting Countries, along with Russia and other countries, will increase production by 500,000 barrels per day in January and possibly a similar amount in the following months.
The increase, less than 1% of the global oil market, comes at a time when demand is still under pressure from the coronavirus pandemic. Later, on 3 April, the Saudi foreign and energy ministers issued statements criticizing Putin and accusing Russia of not participating in the OPEC agreement. [38] In this sense, the agreement, since the United States is now a player in global oil policy, has become an acceptable minimum for Russia. Trump said the U.S. will cut production, even some of Mexico`s commitments to limit oil production. In comments to RBC, an economic news channel in Moscow, Leonid Fedun, the vice-president of Lukoil, Russia`s largest private oil group, compared the agreement with the 1918 Brest-Litovsk Treaty, when “the Bolsheviks had to make a humiliating and difficult deal with Germany.” As a result of the COVID 19 pandemic, plant production and transportation declined, which also led to a decline in aggregate oil demand and oil prices. [14] On 15 February 2020, the International Energy Agency forecast that demand growth would fall to its lowest level since 2011, with a