Oil Prices Plunge to Lowest Level in 18 Years... Saudi Arabia Says "Will Still Increase Production"

WTI Plunges 24.4%
Concerns Over Oil Oversupply
Saudi Arabia Reaffirms Production Increase Stance

[Asia Economy Reporter Naju-seok] Due to decreased demand caused by the novel coronavirus infection (COVID-19), oil prices have fallen to their lowest level in 18 years. However, Saudi Arabia, the leader of the Organization of the Petroleum Exporting Countries (OPEC), reaffirmed its stance to increase supply. There are even forecasts that oil prices could enter the $10 per barrel range due to oversupply.

On the 18th (local time) at the New York Mercantile Exchange, April delivery West Texas Intermediate (WTI) crude oil closed at $20.37 per barrel, plunging 24.4% from the previous day. This is the lowest level since February 2002. The May Brent crude oil contract on the London ICE Futures Exchange fell 14.1% to $24.67. Generally, a drop in oil prices is positive for the global economy as it reduces the cost burden on non-oil-producing countries. However, currently, with the COVID-19 pandemic causing a halt in both global demand and supply, the decline in oil prices has a more devastating impact on the economy.

Although oil prices have hit their lowest point in 18 years, there is a high possibility they will fall further. The decrease in oil demand due to COVID-19 is expected to worsen, and Saudi Arabia has reaffirmed its policy to increase production. The Saudi Ministry of Energy confirmed on the same day that it has instructed the state-owned oil company Aramco to maintain a daily production of 12.3 million barrels starting next month. Saudi Arabia’s record-high oil production is now within reach.

Saudi Arabia has also prepared measures to cope with low oil prices. Saudi Finance Minister Mohammed Al-Jadaan disclosed a budget cut of 500 billion riyals (approximately 16.73 trillion won) on the day. The budget was reduced reflecting decreased tax revenues due to low oil prices. Foreign media interpreted this as Saudi Arabia signaling its intention to pursue a 'survival deficit' strategy despite reduced fiscal income. Saudi Arabia has also announced plans to further increase production through 'upgrading' oil production facilities.

[Image source=Yonhap News]

As economic activities come to a halt, market forecasts are worsening. John Kilduff, founding partner of energy investment firm Again Capital, said, "Saudi Arabia is pouring oil on a fire every day," adding, "Oil prices are still searching for their bottom, and WTI could fall to around $18 per barrel." Earlier, investment bank Goldman Sachs predicted that WTI and Brent crude oil prices would fall to $20 and $22 per barrel respectively in the second quarter of this year. Goldman Sachs had forecasted prices in the high $20s earlier this month but lowered its estimates within two weeks as the global economy rapidly froze.

Meanwhile, Iraq, an OPEC member country, proposed an emergency meeting between OPEC and non-member oil-producing countries to stabilize the market situation. Iraq, which has relatively limited financial capacity, argued that the oil price war should stop now and that production cuts should be discussed.

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