Vladimir Putin with Crown Prince and Defence Minister of Saudi Arabia Mohammad bin Salman Al Saud. Image source: "Vladimir Putin and Mohammed bin Salman" by www.kremlin.ru is licensed under CC BY 4.0
Crude oil has plummeted by nearly 30 per cent at today’s market open and is currently trading around $30.00 per barrel. The drop is owing to Saudi Arabia’s U-Turn in policy over the weekend.
Just days after the conclusion of OPEC’s 178th meeting in Vienna, in which Saudi Arabia proposed the implementation of further reductions in production, it has now announced it will be boosting its own production instead.
Initially, the proposal for reducing the aggregate production of OPEC and OPEC+ was advanced in a bid to offset the fallout from the coronavirus on the global demand for the precious commodity.
Russia, as a member of OPEC +, however, refused to play ball at the conference. The Russian Federation was reluctant to act in this constantly evolving environment and instead preferred to stand idle and observe the development of the situation.
Its refusal to contribute to the proposed reductions in oil output prompted Saudi Arabia to act on it and engage with Russia in what some commentators were quick to dub a ‘Crude Oil Price War’.
The Kingdom is currently racing towards a red light with Russia in what is quickly becoming a high-stakes game of chicken. Saudi Arabia appears to be thinking that Russia is bluffing, and that is why it is calling on its 'bluff' by engaging in a bitter spat over production levels.
The consequences of this poker game can be long-lasting and profound. According to Forbes, Russia is losing between $100 million and $150 million a day over its disagreement with OPEC, and today’s developments are bound to increase its sufferings.
If Putin yields and agrees to cooperate with OPEC promptly, a massive crisis would most likely be averted, as Saudi Arabia would no longer have an incentive to keep the pressure on Russia.
Conversely, a potentially prolonged disagreement between the two sides coupled with the ongoing coronavirus fallout would likely bolster the overall pressure on the global economy and thereby increase investors’ worries.
These recent developments have only contributed to the overall surge in adverse volatility on the global capital markets, which is currently reaching concerning levels.
Meanwhile, the price of crude oil is currently consolidating around the psychologically important support level at $30.00 per barrel.
If the spat between Russia and Saudi Arabia continues to deteriorate, the price is likely to break down below this crucial support and continue going south as global tensions keep on escalating.
Crude Oil 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
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