"Oil Prices Could Drop to $20 per Barrel"… Saudi Arabia Continues 'Oil Price War' Despite COVID-19

OPEC+ Talks Fail, Saudi Arabia Chooses Production Increase Over Cut
Interpreted as Saudi Move to Punish Russia
Questions Arise Over Saudi Ability to Handle Low Oil Prices

[Asia Economy Reporter Naju-seok] "This year, oil prices will head toward $20."

Signs of a 'chicken game' are emerging in the crude oil market. As oil-producing countries failed to reach an agreement on production cuts, the possibility of increased production led by Saudi Arabia has grown. Accordingly, the forecast that oil prices will slump to the $20-per-barrel range within the year is gaining traction.

On the 8th (local time), according to CNBC, Ali Khederi, who previously advised on Middle East affairs at ExxonMobil, said after hearing the news of the failed production cut agreement at the OPEC+ meeting held in Vienna, Austria, "(This failure) has significant geopolitical implications," and added, "Oil prices will plummet to the $20-per-barrel range."

OPEC had been pushing for a production cut of 1.5 million barrels per day to cope with the global demand decline caused by COVID-19. However, the oil market plunged as Russia did not agree to the cuts within OPEC+.

In particular, when Saudi Arabia's state-owned oil company Aramco announced plans to increase its current daily crude oil production from 9.7 million barrels to 10 million barrels starting next month, oil prices fell more than 20%, marking the largest drop since the Gulf War. When analyses suggested that Saudi Arabia could increase daily production to 12.5 million barrels, Brent crude fell to $35.72 per barrel (10 a.m. KST on the 9th).

Some analysts suggest that, having failed to stabilize prices through production cuts, oil-producing countries are trying to meet fiscal needs by selling more oil. Saudi government officials stated in media interviews, "Why should only Saudi Arabia cut production when other countries are not?" and "Saudi Arabia has the right to sell more to compensate for losses caused by the falling oil prices."

However, considering the oversupply situation, the analysis that this is a move to punish Russia is gaining credibility. It is seen as an exertion of power to break the previously stable oil supply and demand system.

There are also forecasts that Saudi Arabia will eventually abandon the plan to increase production, as it may not withstand low oil prices. Adam Crisafulli, founder of Vital Knowledge, pointed out, "The Saudi government, which needs high oil prices to balance its budget, cannot endure low prices." He added, "Now that Aramco is publicly listed, the Saudi government will also be cautious about oil prices falling below $30 per barrel."

On the 8th, Aramco's stock price fell to 30 riyals, below the initial public offering (IPO) price of 32 riyals, for the first time since the IPO.

This content was produced with the assistance of AI translation services.