SAUDIS DECLARE "ECONOMIC WAR" ON RUSSIA & IRAN WITH OIL PRICE HIKE (SHALE PRODUCERS CAUGHT IN CROSSFIRE)

Saudi Arabia has effectively declared "economic war" on other oil producing countries by unilaterally boosting supply just when demand is plummeting due to the coronavirus.  

As reported by the Financial Times: 

Saudi Arabia has launched an aggressive oil price war targeting its biggest rival producers after Russia refused to join production cuts with Opec, in a move that threatens to swamp the crude market with supplies just as the coronavirus outbreak hits demand.

Saudi Arabia will raise production and offer its crude at deep discounts to win new customers next month, according to two people familiar with the country’s oil policy, which risks sending prices tumbling further. Oil prices had already dropped by a third since January to near $45 a barrel.

The kingdom plans to pump more than 10m barrels a day next month while announcing unprecedented discounts of almost 20 per cent in key markets, in an apparent attempt to punish Russia, while squeezing the US shale industry and other higher cost producers.

The move was made after Russia refused a Saudi plan to cut oil production to stabilise prices.

Saudi Arabia had last week sought the support of Opec and allies outside the cartel, such as Russia, for a substantial cut in production to stabilise the oil market, which has been reeling as the spread of coronavirus hits the global economy and saps demand for crude.

But Russia torpedoed the plan, eyeing an opportunity to hit US shale producers, infuriating the kingdom and resulting in the countries removing all restrictions on their output from April.

Russia has built up a $170bn national wealth fund from excess oil revenues in recent years and believes it can tap that to offset any short-term price war, despite crude plunging close to its budget break even price of around $42 a barrel.

The irony is that Suadi Arabia's decision will hit US shale producers even harder than the Russian plan. 

But it also looks like the move may also be designed to add to Iran's problems, as Iran is one of the biggest victims of the coronavirus pandemic and a long-standing rival of Saudi Arabia in the region. 

In recent days, Saudi Arabia's ruler, Crown prince Mohammed bin Salman, has had at least four members of his own royal family arrested in what looks like an attempt to consolidate his increasingly dictatorial power. Along with Turkey's President Recep Erdogan, Bin Salman is one of biggest "loose cannons" in the Middle East today, adding to a very unstable situation.

The increase in Saudi production may also "invite" further drone strikes, like the one last September on Saudi refining facilities that drastically cut production. That attack was supposedly carried out by Houthi fighters from the Yemen where a civil war is raging.

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