Saudi Arabia stopped trying to support oil prices. Enter America - But a supply agreement can do little in the face of a huge demand shock
Early in march the oil market’s central banker seemed to go berserk. Saudi Arabia, the most powerful member of the Organisation of the Petroleum Exporting Countries (opec), has long adjusted its supply to help stabilise the price of crude. Russia had teamed up with opec since 2016, but as covid-19 drove demand relentlessly down, it refused opec’s plea to cut production. Saudi Arabia retaliated, declaring its intent to flood global markets. The price of Brent crude halved between March 5th and 18th, to $25 a barrel. “The price war has become largely irrelevant,” says Ben Luckock of Trafigura, a trading company. Saudi production now seems far less important, he argues, than the pandemic’s historic destruction of oil demand. Covid-19 is obliterating this at such an astonishing rate that analysts cannot adjust their models quickly enough.
This article was originally published by The Economist on the 26 March 2020.
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