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Monday , January 18 2021

Moscow, DC in ‘war of barrels’

Ahmed Al-Jarallah Editor-in-Chief, the Arab Times

THE ‘OPEC Plus’ agreement lasted for about three years after the agreement of OPEC countries and Russia to coordinate in cutting down oil production in order to maintain parity prices at the limit of $65 per barrel.

However, the recent economic crisis prompted change in the situation for countries to maintain their customers; hence, Russia is the first to exit from the agreement of cutting oil production due to several goals, including the fact that the United States of America began to return to the market strongly as a result of the boom in shale oil production.

This is a new competitor to regular oil despite the consensus of experts in the past years that the cost of producing one barrel of shale oil is about $70, which is very high and not commercially feasible. With the development of technologies, production cost declined to $40 or a little lower, which propelled the United States to declare its self-sufficiency in terms of oil and increasing exports abroad; making it a competitor to reckon with.

Furthermore, the United States’ fear of competition in its backyard and its natural strategic field; ie Latin America, prompted Washington to remove Venezuela from the market by imposing trade sanction on it – first in the hope of taming Venezuela, and second, to ensure that part of its oil is not exported to other Latin countries.

Also, in the midst of the Cold War between Russia – one of the major producers – and the United States; the use of all weapons becomes legitimate, which may have prompted Moscow to follow a plan that will make OPEC capitals exit from the agreement under the weight of maintaining their markets by increasing quantities.

Indeed, the OPEC countries do not seek high cost of production, but also it is not in their interest to maintain high prices because this reflects negatively on the rest of oil derivatives which they import, and that the new competition emerging from countries which recently entered the markets makes them push towards not losing their historical markets.

This is exactly what the Kingdom of Saudi Arabia and the United Arab Emirates have done in terms of protecting their markets from negative rebounds; in addition to the decline in China’s import of oil and the countries currently suffering from the ‘corona’ crisis; thereby, increasing surplus in the markets.

Without a doubt, the Saudi and Emirati position was not improvised as it was rather studied and planned. The goals are known. Perhaps, the first goal is to redress imbalances in the markets of this strategic commodity; so that the previous crises do not recur, lest losing more of their financial reserves.

Undoubtedly, Russia is also benefiting as it considers anything that disturbs the United States having positive returns for it.

By Ahmed Al-Jarallah

Editor-in-Chief, the Arab Times

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