Why is the international oil price war a flash in the pan

After the OPEC and Russia and other 10 oil-producing countries, the Vienna Union, at the ministerial meeting in early March this year failed to reach an agreement on production cuts, Saudi Arabia immediately launched a price war, announcing a substantial discount to customers and a significant increase in crude oil supply. International oil prices have repeatedly plunged into a free-fall crash, which has also significantly exacerbated capital market volatility.

The market believes that Saudi Arabia ’s sudden price war is similar to Saudi Arabia ’s many such behaviors in the past. They are all aimed at increasing their market share and consolidating their position in the crude oil market through “crashing and breaking” when they are in trouble. purpose.

However, the situation has changed a lot since Trump stated on March 19 that there may be diplomatic intervention in the price war between Saudi Arabia and Russia. The members of the Vienna Alliance finally reached an unprecedented volume reduction agreement of 9.7 million barrels / day on the 12th. The price war initiated by Saudi Arabia naturally requires truce.

Compared with the previous months expected by the market, the price war lasted only for more than a month, and international oil prices have not been continuously suppressed to the level of US $ 20 per barrel or even below US $ 10 per barrel. The reason why this price war gives people a "snake" is mainly due to the sudden drop in global oil demand and the active involvement of the United States. Of course, Saudi Arabia has also achieved its purpose to a certain extent through this time-consuming price war, and to avoid greater harm to itself.

First of all, the global impact of the new coronary pneumonia epidemic is a common challenge faced by all countries. The measures taken by countries to respond to the epidemic, such as business shutdowns and other measures, have caused the world's oil demand to plummet by 20% or even 30% in a short time. The global oil supply has surplus of 20 million barrels to 30 million barrels per day. OPEC and its partners naturally feel unable to cope with it. If other oil-producing countries are willing to overcome the difficulties together and reduce production to reduce the pressure of oversupply, Saudi Arabia is naturally happy.

In fact, after the oil price plummeted, the problem of oversupply of oil became more and more serious. The United States, Canada, Brazil, Norway and other oil-producing countries and crude oil exporters have all expressed their willingness to cooperate with the production cuts. At a time when an enlarged version of the Vienna Union may appear, Saudi Arabia and Russia naturally followed the voice of the international community and proceeded to discuss the issue of joint production cuts.

Secondly, in order to avoid the impact of domestic oil and gas companies, the United States, as the largest oil producer in the world, began to send a strong signal to Saudi Arabia and Russia from the president to members of Congress, from business leaders to industry interest groups. As the largest ally of the United States in the Middle East, Saudi Arabia would normally not be willing to pay the price of severely deteriorating relations with its allies due to price wars. Russia is also reluctant to receive further sanctions from the United States. The United States has also released signals to advance the "Anti-OPEC Act" and impose tariffs on imported crude oil, which will cause significant damage to Saudi Arabia's interests.

Trump also showed that he was a businessman who was good at making transactions, wielding big sticks while doing good work in Saudi Arabia and Russia, making it difficult for Saudi Arabia to continue the price war.

In addition, Saudi Arabia also understands that even if it is because of the low cost advantage that it is the last to laugh, the price war will eventually hurt both sides. Ending the price war early can of course prevent the country ’s fiscal revenue and Saudi Aramco ’s performance from being significantly impacted. At the same time, the recent plunge in international oil prices has caused companies in high-cost oil-producing countries such as the United States and Canada to start cutting capital expenditures drastically and start a process of production cuts, and competitors have been weakened to some extent.

Furthermore, by again reaching an unprecedented scale of production reduction agreements, OPEC once again played a role in maintaining a balanced market and oil prices, which is conducive to repairing the damage to OPEC and its own reputation caused by the price war.