Saudi Aramco plans to cut spending in 2020 as profit decreases

Oil heading for 20% weekly loss worst in 29 years

Why Saudi Arabia launched an oil price war

Last week, Aramco stock price printed a record low of $27 amid the oil price war that Saudi Arabia launched against Russian Federation.

"They can not keep up this fight for very long", NaEem Aslam, chief market analyst at AvaTrade, tells Al Jazeera about the oil price war between Saudi Arabia and Russian Federation.

The oil giant cited lower crude oil prices and production for the decline in profit. But it is the threat to the U.S. shale oil industry, which is carrying debts of US$86 billion, that has Wall Street investors anxious. But this move, in response to risks of weak demand growth and oversupply conditions, did not prove a match to the oil demand destruction worries due to the global spread of the coronavirus.

There had been talk of a bromance between Putin and bin Salman.

Aramco had complete confirmed hydrocarbon reserves of 258.6 boe in 2019, barely below 256.9 billion boe in 2018. Analysts say Saudi Arabia may be underestimating Russia's ability to weather low prices.

Goldman Sachs said it now expected a record high oil surplus of 6 million barrels per day (bpd) by April, in a global market that usually consumes about 100 million bpd. An agreement between the two, if and when it happens, could see oil prices again go to levels of $50 or so a barrel.

Oil prices start this week with their biggest week of losses since the 2008 global financial crisis under their belt.

The firm said it continued to be "one of the world's largest producers of crude oil and condensate with an average total hydrocarbon production of 13.2 million barrels per day of oil equivalent".

However, Moscow declared it had had enough. But Reuters quoted Gazprom Neft CEO Alexander Dyukov as telling reporters that representatives of oil producers have not even discussed with Novak returning to a deal with OPEC+.

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West Texas Intermediate fell 1.7 percent to about $33 a barrel while Brent crude was off 1.7 percent at $36 a barrel . The dramatic dissolution of the Opec+ alliance saw crude prices plunge by the most since the 1991 Gulf War on Monday.


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"It's a problem of an oil price war in the middle of a constricting market when the walls are closing in", U.S. energy historian Daniel Yergin said last week in a Reuters story. He adds that this is bound to bring prices lower.

The Saudis have tried a tactical flooding of the market before.

Thanks to the rapidly growing coronavirus outbreak efforts by top exporter Saudi Arabia and its allies to flood the market millions of barrels of extra crude, prices mostly ignored the positive lead from equity markets on Friday in the wake of President Donald Trump's declaration of a state of emergency across the US. Despite this, Russian Federation did not want to team up with OPEC believing the bigger cuts to production would only propel rival USA shale producers. Yet one of the world's biggest oil traders, Trafigura Group, now expects oil demand to contract by as much as 10 million barrels a day due to the coronavirus outbreak.

Moscow hoped Riyadh would be on its side to inflict economic pain on United States shale producers. "It seems very likely that this decision will backfire for Russian Federation and further advance USA goals", he says.

Hamm said that American producers will not be sitting on the sidelines while other producers deliver more oil to the market.

Only weeks ago the U.S. imposed sanctions of a subsidiary of Rosneft in response for its support of the President of Venezuela. Occidental Petroleum in the USA cut its dividend to shareholders by nearly 90% this week.

Will the rout in oil prices continue?

This article by David Uren first appeared in the Australian Strategic Policy Insitute's The Strategist in 2020.

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