As Low Oil Prices Persist, US Pressures Saudi Arabia... Pompeo Says "Market Must Be Stabilized"

[Asia Economy Reporter Naju-seok] The United States has increased pressure on Saudi Arabia to stabilize oil prices. The U.S. State Department disclosed that it demanded Saudi Arabia to respond to the oil price issue.

On the 25th (local time), U.S. Secretary of State Mike Pompeo revealed that he had a phone conversation with Saudi Crown Prince Mohammed bin Salman. Regarding this, the U.S. State Department stated, "(Secretary Pompeo) requested that Saudi Arabia, the chair country of the Group of 20 (G20) and a leading energy producer, use its influence to stabilize the global energy market and financial markets facing economic uncertainty."

[Image source=Yonhap News]

As the global demand for crude oil sharply declined due to the novel coronavirus disease (COVID-19), Saudi Arabia announced a policy to increase production, causing the global crude oil market to plunge. As a result, West Texas Intermediate (WTI), which had hovered around $60 per barrel this year, is now priced at $24.2 per barrel. Experts believe that Saudi Arabia initially sought to cut production, but when Russia did not cooperate, it announced a production increase policy.

Due to the aftermath of the oil price war, the U.S. shale industry, which has higher oil extraction costs than Saudi Arabia, is facing a crisis in profitability caused by this price war. In this regard, it is known that the U.S. energy sector has recently lobbied the U.S. government to intervene actively.

Besides the United States, countries such as Iraq, Oman, and Nigeria, which rely on oil exports but are not economically affluent, are facing difficulties such as reduced fiscal revenues due to low oil prices. Some analyses suggest that Saudi Arabia itself is also in a difficult position due to a decline in oil demand that exceeds initial expectations.

Initially, U.S. President Donald Trump expressed a welcoming stance toward low oil prices from the perspective of American consumers but recently changed his position. This is because the low oil prices originating from Saudi Arabia have shaken not only the self-sufficiency of the U.S. energy market but also its status as the world's largest oil producer.

Therefore, Saudi Arabia's choice is crucial.

Saudi Arabia is also facing difficulties in fiscal revenues due to low oil prices. However, if Saudi Arabia has decided to change the global oil market landscape amid demand contraction caused by COVID-19, it is expected that it will not easily abandon its low oil price strategy despite U.S. pressure.

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