Saudi Arabia and Russia intensified an escalating oil-market war on Tuesday, with Riyadh set to raise output to record levels and Moscow saying it was ready to pump more crude.

State-run Saudi Arabian Oil Co. said it would boost production to 12.3 million barrels a day in April, some 300,000 barrels a day over the company’s previous maximum sustained capacity.

Russian Energy Minister Alexander Novak, meanwhile, said his country could rapidly open its own taps.

Oil prices lost a fifth of their value Monday, after Saudi Arabia over the weekend slashed its crude prices and signaled it would boost its output next month. The move followed Russia’s rejection of a Saudi-backed plan by the Organization of the Petroleum Exporting Countries to cut crude output in response to dwindling demand in China and elsewhere.

Even as the price war escalated with fresh salvos from both sides, former Saudi energy minister Khalid al-Falih was in talks with Mr. Novak in an attempt to reverse the production hikes and revive the collective OPEC-Russia output curbs, according to Saudi-government advisers and officials.

Mr. Falih, who negotiated the initial production cuts in 2016, is now Saudi Arabia’s minister of investments. His outreach to Mr. Novak is done with the approval of Saudi authorities, the advisers said. If Mr. Falih’s mediation succeeds, the advisers and officials said, OPEC and its allies including Russia will convene an emergency meeting in April.

Mr. Novak said Moscow isn’t ruling out further cooperation with OPEC, adding that the next scheduled meeting is planned for May or June.

“The doors are not closed," he said.

Amid the escalating fight, President Trump called Saudi Crown Prince Mohammad bin Salman on Monday to discuss global energy markets, the White House said Tuesday morning. The leaders also discussed “other critical regional and bilateral issues," according to a statement.

Saudi Arabia and Russia’s decisions to flood markets are surprising, as China—the world’s largest oil importer—has been hobbled by the deadly coronavirus, which has hurt its demand for oil after refineries and factories were forced to shut.

Saudi Arabia’s struggle for oil-market supremacy might earn it a sliver of market share at the expense of Russia and rival U.S. shale producers, but the cost of a price war might be too much for the kingdom to bear, analysts and oil officials say.

The combination of declining global consumption and rising supply pushed Brent crude, the benchmark for global prices, to its sharpest decline since the first Gulf War in 1991 on Monday. Some of these losses were recouped Tuesday as the Brent oil price gained 8% amid a broader revival in markets.

Saudi Arabia’s aggressive discounts are targeting some of Russia’s core markets in China and Northern Europe. The kingdom is also taking aim at U.S. oil producers, Saudi and OPEC officials said.

The Russian energy minister declined to comment and the Saudi energy minister didn’t respond to a request for comment.

Some oil officials say they struggle to see the logic behind Saudi Arabia’s decisions. Others see the battle as tied to Prince Mohammed’s recent efforts to tighten his grip on power and raise his international clout, according to people involved in the OPEC talks.

Russia’s failure to find common ground with Saudi Arabia and OPEC on oil cuts was preceded by talks in early February between Riyadh and Moscow that focused on the possibility of forging a broader, long-term alliance. Under one scenario, Saudi Arabia would have sped up its investments inside sanctions-hit Russia and backed the Kremlin’s military efforts in Syria, according to people familiar with the matter.

Ultimately, the crown prince didn’t commit to a deal, say the people familiar with the matter, because he didn’t want to alienate the U.S. Weeks later, roughly at the same time that Russia was refusing to endorse the Saudi-backed plan to cut oil output, Mr. Putin was initiating a rapprochement with Turkey, a Saudi foe, the people said.

“It’s all about egos now, not about the oil market," said a Saudi-government adviser.

Meanwhile, Prince Mohammed saw the OPEC debate as a way to assert his broad influence over the kingdom’s oil policies and to prove to his older brother, Saudi energy minister Prince Abdulaziz bin Salman, that he could force Russia’s hand, according to people familiar with his thinking.

In a terse phone call to Prince Abdulaziz late Thursday, the crown prince overruled his brother, who had agreed to a three-month production cut with OPEC, and extended the proposed cuts through the end of the year, these people said.

The crown prince ordered the minister to force OPEC to adopt the decision—even if that meant risking any hope that Russia would join in, they said.

Now the kingdom is pursuing a strategy of undercutting its rivals by drowning markets with cheaper oil—a move that has a tendency to backfire, say longtime market watchers.

On Saturday, the Saudi energy ministry told Aramco officials that instead of cutting production, they should pump more oil and lower the price. Saudi Arabia soon spread the word throughout the market. “It was the Saudi declaration of war against Putin," said a senior Saudi official.

Within hours, officials at the finance ministry were tasked with preparing a budget scenario that envisions benchmark Brent crude prices dropping into a $12-$20 a barrel range. All Saudi ministries were also asked to cut their spending significantly to prepare for this scenario.

But the strategy has backfired before.

In 2014, then-Saudi oil minister Ali al-Naimi persuaded OPEC to pump at will to compete with U.S. shale producers. His rationale was that the cartel’s members had the ability to produce at extremely low costs. But after the price of Brent crude fell below $28 a barrel in early 2016, the Saudi royal family fired him. His successor, Mr. Falih, negotiated a pact between OPEC and Russia to cut production in the first OPEC+ deal. Within months, oil prices more than doubled.

The move to depress prices also missed its mark in the 1980s and led to a period known in oil circles as the “Lost Decade." In 1986, OPEC faced competition from rising North Sea production. Saudi Arabia’s delegation was so upset about OPEC members flouting the group’s production agreements that it unleashed a flood of oil that sank prices for a prolonged period.

Eventually, Saudi Arabia backtracked and cut production, but the move wasn’t a complete failure, as it helped score a political victory against the Soviet Union. Riyadh had been backing insurgents battling Russia in Afghanistan—many of whom would later found al Qaeda. As the oil price fell to around $30 a barrel, Russia faced a budget crisis that contributed to food shortages and an end to its war in Afghanistan. Its then-leader Mikhail Gorbachev retreated from Kabul and launched the restructuring of Russia under his perestroika policy.

Russia is better prepared to weather low oil prices than in the past. Oil is now accounts for less than a third of budget revenue. The country has also accumulated massive reserves. The Russian finance ministry said Monday that it could withstand 10 years of prices at $25 to $30 a barrel.

Still, some Russian producers say the oil-market war is excessive.

“I’m in shock. This is a very unexpected, irrational decision to put it mildly," Leonid Fedun, vice president of Russian private producer Lukoil was reported as telling Russian newspaper the Bell. Russian oil companies would like to increase production, he said, but that won’t make up for losses from falling prices.

The mood is more somber in Saudi Arabia, which needs oil prices over $60 a barrel to balance its budget, according to Saudi officials. The kingdom is now contending with its own coronavirus outbreak, moving Monday to suspend all air travel with many of its neighbors.

Saudi Arabia’s national oil company Aramco fell about 7% to 27.95 riyals ($7.45) a share on the Saudi domestic exchange Monday. The Saudi price decrease has “literally burned all global energy investors," said a Saudi official. “[Saudi Aramco] Won’t sell a share to foreigners again," he said, referring to the Crown Prince’s plan to list Aramco internationally.

—Rory Jones, Donna Abdulaziz and Georgi Kantchev contributed to this article

This story has been published from a wire agency feed without modifications to the text.

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