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Saudi Arabia celebrating triumph while Russia licking wounds

Saudi Arabia celebrating triumph while Russia licking wounds

Saudi Arabia won a crushing victory in the oil price war unleashed by Russia in March. In a flash, Riyadh’s predatory marketing policy dealt a heavy blow to Russian drillers, experts comment on the recent developments in the global energy market. With generous discounts, Saudi Arabia poached time-proven large buyers from Russia, having squeezed Russian exporters out of the market. Moreover, Riyadh managed to lure key oil consumers away from US shale oil producers. As a result, de facto OPEC leader Saudi Arabia conquered the lion’s share in the global market. At present, the Kingdom has the chance of increasing its presence in the market to the maximum extent like in the 1980es when Saudi Arabia in alliance with the US smashed the USSR off the geopolitical map. 

Analysts at JP Morgan estimate that the Kingdom’s share in the global oil market will expand to 15% by 2020 from 11.6% nowadays. Likewise, OPEC’s market share is likely to swell to 40% from the current 33% in a five-year term. In other words, a 40% slump in oil prices this spring reinforced Riyadh’s reign in the market. Experts point out that the roaring success in the fierce price war with Russia rests on several factors such as a smart pricing strategy, low production costs, and powerful capacities which enable Saudi Aramco to step up output rates. With this arsenal, the Kingdom can easily flood the market with cheap oil taking over available niches. 

Having failed its blitzkrieg, Russia is now licking its wounds. The export-reliant economy has to survive a nosedive in oil prices which was partly triggered by Russia’s stubbornness about oil production cuts. The federal budget operates on condition that export oil is invoiced at $67 a barrel, though the budget rule has not been revised yet and still works when crude oil is over $42 a barrel. Besides, worn out production facilities require regular maintenance. It means that Russia will hardly be able to yield output rates like in 2019 until the second half of 2021. In the distant future, Russia will face the reality of trimming production rates.                




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