Saudi Arabia and Russia increase the risks in the face of oil

The clash between the two oil giants sparked a 25 percent drop in oil prices on Monday, triggering panic selling and heavy losses for major stock indexes on Wall Street, already hit hard by the Corona virus outbreak.

The White House said on Tuesday that US President Donald Trump spoke with Saudi Crown Prince Muhammad bin Salman on the phone on Monday to discuss global energy markets.

Amin Al-Nasser, CEO of Saudi Aramco, said that the oil giant will raise supplies to 12.3 million barrels per day in April for customers inside and outside the kingdom.

This is 300,000 b / d higher than its maximum production capacity, which indicates that Aramco may also release crude from stock.

Saudi Arabia also agreed with Kuwait to resume production from joint oil fields in what is known as the neutral zone, which was not included in the calculation of Aramco’s production capacity of 12 million barrels.

US Treasury Secretary Stephen Mnuchin told Russia’s ambassador to the United States on Monday that energy markets need to remain “orderly” amid growing concerns that excess production from Saudi Arabia and Russia could bankrupt some of the higher-cost US shale oil producers.

Saudi Arabia has been pumping around 9.7 million bpd a few months ago. The kingdom stores hundreds of millions of barrels of oil, so it can supply more oil than it can produce.

Brent oil prices jumped ten percent on Tuesday, to exceed $ 37 a barrel, after Russian Energy Minister Alexander Novak said Moscow was ready to discuss new measures with OPEC, in an actual hint of an olive branch to Riyadh.

But the Saudi Energy Minister, Prince Abdulaziz bin Salman, apparently met the idea.

“I do not see any justification for holding meetings in May-June that would only show our failure to do what is required in such a crisis and adopt the necessary measures,” Prince Abdulaziz told Reuters.

The unprecedented increase in crude supplies by Riyadh comes after the collapse of talks between OPEC and other producers, led by Russia, in the context of the OPEC + group, which was seeking to extend joint efforts to reduce supplies after the end of March.

Cooperation between producers in OPEC +, which lasted for three years, ended on Friday after Moscow refused to support further production cuts to boost prices damaged by the outbreak of the Coruna virus.

OPEC responded by removing all restrictions on its production. Oil prices tumbled after this development renewed fears of a repeat of the price collapse in 2014 when Saudi Arabia and Russia competed for market shares with shale oil producers in the United States that had never participated in an agreement on production restrictions.

* Meeting in Moscow

Two informed sources told Reuters that the Russian Energy Ministry called for a meeting with oil companies tomorrow, Wednesday, to discuss future cooperation with OPEC.

Novak said that Russia is able to raise oil production by up to 300 thousand barrels per day, and that producers in the country can increase production by 500 thousand barrels per day.

OPEC + has actually reduced production by 2.1 million barrels per day, led by Saudi Arabia, which has cut production more than agreed.

Russia and Saudi Arabia have accumulated huge financial fenders, helping them endure a prolonged price war.

But Fitch Ratings said that the sharp fall in oil prices, if it continues, will likely harm the sovereign ratings of the financially weaker exporting countries, especially those with additional pressure from linking exchange rates.

Jan Friedrich, analyst at Fitch, told Reuters that Saudi Arabia’s financial reserves and sovereign wealth fund provide a buffer, but there is “no endless room” in terms of the country’s A rating (with a stable outlook).

By 1353 GMT, Aramco was 9.9 percent higher at 31.15 riyals, lower than its December 32 IPO price.