Saudi Arabia Continues to Threaten U.S. Oil Markets

While the rest of the world grapples with the worst medical emergency in generations, Saudi Arabia’s hostile oil ambitions remain unchecked.

There’s a reason gas prices are dropping, and those in oil and gas towns may have been the first to notice that something is wrong. On top of everything else going on, the United States oil market is under attack. A failed agreement between oil-producing countries has led Saudi Arabia to break away and flood the market, and what happens next is anyone’s guess.

UAE Increasing Production to 17 Million Barrels Per Day

Saudi Arabia is flooding the market with cheap crude oil in a desperate bid to push the United States and Russia out of the market. As a consequence, U.S oil has been dropping — by 4% last Wednesday. Previously to this, OPEC had an agreement to cut oil, but because Russia would not agree to continue to cut oil, the agreement fell apart. Thus, both Saudi Arabia and Russia are now vying to price the United States out of the market, and both seek to ultimately be the only one left standing.

Saudi Arabia will be increasing its oil production dramatically, with Saudi Aramco promising to produce 13 million barrels per day, and Abu Dhabi National producing 4. Ultimately, it’s a trade war of attrition. The hope is that it will be able to outlast both United States and Russia, keeping its prices low until it’s the only oil source available. Comparatively, the United States produced 10.99 million barrels per day in 2018.

A Desperate Tactic During a Global Crisis

Presently, the need for oil is reduced. Factories are shut down due to the current global COVID-19 crisis, and no one knows how long this situation may last or how it will spiral. Because of this, it’s a delicate time for all oil-producing nations.

Saudi Arabia may be able to out survive Russia and the U.S. through sheer production, and would then remain the major contender when the global population recovers from current economic strife. On the other hand, reduced oil spending could mean that Saudi Arabia’s extensive oil production instead causes irreparable harm to the country, which presently supplies about 10 to 12 percent of crude oil in the world.

Regardless, it has long-term ramifications for all other oil producing countries.

The United States and Dropping Oil Prices

As oil prices drop, the United States faces another economic challenge, in addition to other concerns. The United States has been aggressively increasing its oil production in the last few years, in hopes that new methods of oil production such as fracking might make oil a major export, while also freeing the US from outside influence.

But because the US has invested such a significant amount into the oil industry, it’s also particularly sensitive to oil collapse. Short-term, lower oil prices mean lower energy and gas, which can alleviate some negative economic effects. However, the oil and gas industry itself is weakened.

The US has had its fair share of trouble from OPEC before, and the oil and gas industry has been tumultuous for years. Lower oil prices are a double-edged sword for the economy, and could be disastrous for areas that rely primarily upon oil income. However, it’s also a fairly desperate play from Saudi Arabia, which has been backed into a corner by Russia’s non-compliance — long-term, it may hurt the UAE more than anyone else.

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