Cheap Hotel Rooms for the Pan-Americans?
Saudi Arabia slashed its export oil prices over the weekend in
what is likely to be the start of a price war aimed at Russia but with
potentially devastating repercussions for Russias ally Venezuela, Saudi
Arabias enemy Iran and even American oil companies.
The effects were quickly felt, as the Brent global oil benchmark price collapsed
by about $10 a barrel, or over 20 percent, late Sunday in the sharpest decline
since at least 1991, and stock market futures fell by about 3 percent.
The Saudi decision to cut prices by nearly 10 percent on Saturday was a dramatic
move in retaliation for Russias refusal on Friday to join the Organization of
the Petroleum Exporting Countries in a large production cut as the coronavirus
continues to slow the global economy and, with it, demand for oil.
Low oil prices, now about $36 a barrel for Brent crude, the international
benchmark, and about $32 for West Texas Intermediate, the U.S. marker, could
also stoke public discontent with governments, including Saudi Arabias, as
falling revenues mean less money for social and other programs used by
governments to bolster support.
Saudi Arabia is the worlds largest oil exporter and has been producing about
9.7 million barrels a day, well under its roughly 12 million-barrel-a-day
Whether producing more oil will help the kingdom is another question. There is
no easy cure for the predicament that Saudi Arabia and the rest of the oil
industry face. The world is awash in oil, analysts say, and demand will probably
continue to decline.
The prospect of more oil on the market could accelerate the collapse in prices,
which have fallen about a third this year.
But OPECs intention in 2014 of undercutting American and other producers
backfired and reduced its share of the market. American oil companies managed to
increase production anyway, as they became more efficient at drilling through
shale and investors continued to pour money into their enterprises. This time
may be different, though, because Wall Street has grown tired of sluggish oil
investment returns and the high debts of many small and medium-size companies..