Saudi Arabia is the market leader in production and
sale of crude oil. KSA often resorts to oil price to muscle out the targeted
competitor/s depending on the market situation. Here are three instances where KSA
weaponize oil in price war to outwit others in business warfare:
In 1985 USA prevailed upon KSA to bring down the
oil price to elbow out
Russia and bring economic demolishment to her. Taking this order
literally, KSA started to increase oil production in such manner that oil glut
in the market brought down the price per barrel to the lowest figure of US$ 10
that devastated not only Russia but the entire oil market. Incidentally KSA can
produce crude oil much cheaper going down as just one dollar per barrel.
In 2014 the prevailing price of crude was US$ 100
per barrel. At this time US
Shale producers were having gala time as their sales skyrocketed. The
only hiccup they had is the high production cost. To sustain their business
they need at-least the level of US$ 60 per barrel. KSA went on increasing production
resulting in steep fall of oil price. Before long the Shale industry collapsed
as the price fell much below their safety zone.
In March 2020 KSA undertook a big gamble. Along with
UAE they have commenced increasing production despite earlier agreement signed
in Vienna to conform to three objectives:
1. Decrease oil production to allow distribution of
market share between OPEC and non-OPEC countries.
2. Prevent fall of price
3. Stabilize the market price in a safe zone for
the major players in crude oil market
KSA reneged its undertaking and along with UAE
started to produce more crude oil. KSA alone commenced pumping 13 million barrels
per day (bpd). Immediately the price slashed 25% to US$ 36 per barrel. This
time KSA wants to take on both
Russia & Shale sector of USA at one and the same time.
How this weaponizing oil pay out? Let’s wait and
see.
Cheers!
Muthu
Ashraff Rajulu
Business Strategist
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Business
Strategist
No comments:
Post a Comment