The Saudi government joins the action. After announcing on Saturday March 7 that it would rapidly increase its oil production, the day after the snub inflicted on it by Moscow during a meeting of members of the Organization of the Petroleum Exporting Countries (OPEC), the Wahhabi kingdom has just to confirm within 24 hours that he intended to wage a total price war, not only for Russia, but also for American shale oil. This Wednesday, March 11, the oil company Saudi Aramco announced that it planned to increase its production to 13 million barrels per day. Tuesday the world's largest exporter of crude had already decided to increase it by at least 2.5 million barrels per day to reach a record level of 12.3 million.
In the wake of this announcement, oil prices started to fall again, after having gained ground earlier in Asia. At 12:40 p.m. a barrel of Brent North Sea crude for May delivery was worth $ 35.91 in London, down 3.52% from Tuesday's close. In New York, the American barrel of WTI for April lost 3.52% to 33.15 dollars. On Monday, the markets suffered their worst fall in almost 30 years, plunging by around 25% after the breakdown of talks between Russia and OPEC on Friday.
Riyadh's decision to fully open the gates has been judged by experts to be extremely quick, while it normally takes a long time and requires billions of dollars in investment. Several years ago, the kingdom had put aside plans to increase its crude oil production capacity beyond 12 million barrels per day for example. “Saudi Arabia had lowered its production to 9.7 million barrels per day after the various limitation agreements concluded between OPEC and Russia, observes Benjamin Louvet, raw materials manager at OFI Asset Management. However, its potential exceptional allows it to produce up to 14 million barrels. “
With the lowest production costs in the world – less than $ 5 per barrel, the kingdom ruled by King Salman benefits from crude inherently more competitive than American shale oil (shale), for example, whose natural depletion (loss of productivity) is much greater. According to specialists, after eighteen months the wells of shale lose 70% of their productivity and their lifespan is around five years. As for the black gold produced by Russia, it is also more expensive than that coming from the Saudi desert. This comparative advantage of Riyadh is however altered by the great dependence of the local economy on hydrocarbons. When Russia needs a barrel of 43 dollars to balance its budget, the Sunni monarchy hopes for an amount close to 80 dollars – the stagnation of prices in recent years has also plunged the Saudi budget deficit which peaks at 44.7 billion euros.
Redo the shot of 2014
Despite their economic difficulties, the Saudis want to flood the market as they did in 2014. At the time, in order to stem the explosion of American shale oil, the kingdom had significantly increased its production, making drop prices from 120 to 27 dollars and weakening US producers who need a barrel close to 60 dollars to be profitable. Only this strategy also had the consequence of making the Wahhabi kingdom bloodless financially. And did not make the oilmen Americans, who despite growing debt, did more than resist.
This situation had then led the country to establish a surprising alliance with Vladimir Putin, an ally of the Iranian regime, the number one enemy of Riyadh. This led to the historic agreement to limit production in Vienna in 2016, which gave birth to the Opep + group, bringing together the oil cartel and ten other countries including Russia. By imposing production cuts, with quotas to respect, this alliance managed to maintain prices between 60 and 70 dollars which satisfied all the parties. If Russia seemed to question this alliance last Friday, it however hinted Tuesday that nothing was frozen. The recent disagreement “does not mean that in the future we will no longer be able to cooperate between OPEC and non-OPEC countries”, said Russian Energy Minister Alexander Novak.