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Publicado el abril 12th, 2021 | por

Saudi And Russia Oil Agreement

On March 8, 2020, Saudi Arabia launched a price war with Russia, which facilitated a quarterly drop of 65% in the price of oil. [1] In the first weeks of March, U.S. oil prices fell by 34%, crude oil by 26% and Brent oil by 24%. [2] [3] The price war was triggered by a breakdown in the dialogue between the Organization of the Petroleum Exporting Countries (OPEC) and Russia over planned oil production cuts in the midst of the COVID 19 pandemic. [1] Russia left the agreement, which led to the downfall of the OPEC alliance. Oil prices had already fallen by 30% since the beginning of the year due to a drop in demand. [4] The fight for awards is one of the main causes and impact of the global stock market crash that followed. [5] The recent agreement is also different because its objective was not only to keep prices high, but also to prevent the global market from collapsing, as coronavirus decimated demand and the Saudis flooded the world with updated crude oil. Some of the lost demand will return when COVID-19 decreases as a threat, but the oversupply that held prices back before the epidemic will remain. «Any agreement on the extension of the cuts is conditional on countries that failed to fully comply with their cuts in May compensate for their overproduction,» the source said. An additional wildcard is whether the non-OPEC producers who signed the agreement will actually respect it. Quotas for OPEC members are mandatory, but quotas for non-OPEC producers, such as Norway and Brazil, are voluntary, meaning they do not risk sanctions if they do not comply. There is no mechanism to control their compliance, as is the case for OPEC members, which makes it easier for non-OPEC members to ignore their quotas.

The debacle was embarrassing for Russian President Vladimir Putin, who had to not only resign, but also approve of President Donald Trump`s efforts to negotiate a deal. The new negotiated agreement has only temporarily interrupted tensions between Saudi Arabia and Russia, but their war for global market share is likely to continue. The latest news about the effectiveness of coronavirus vaccines, which have pushed oil prices to their highest level since their fall in April, may have made it more difficult to reach an agreement. In response to these higher prices, some oil producers saw less need to maintain supply and wanted to increase pumps to try to improve nearly a year with gloomy oil yields. The price fight began on March 6, when Russia opposed a reduction in OPEC production of 1.5 million barrels per day. It ended five weeks later with an agreement that more than quadrupled the cuts – a record 9.7 million barrels. This compromise is remarkable because, for the first time, consumer countries such as Germany and Japan have helped 23 producing countries reach an agreement. In the past, only producers were involved in such agreements. As a result of the COVID 19 pandemic, plant production and transportation declined, which also led to a decline in aggregate oil demand and oil prices. [14] February 15, 2020, the International Energy Agency forecast that demand growth would fall to its lowest level since 2011, with growth of 325,000 barrels per day over the full year, to 825,000 barrels per day and a decline in consumption of 435,000 barrels per day in the first quarter.

[15] Although global oil demand has declined, a drop in demand in Chinese markets, the largest since 2008, triggered an OPEC summit on March 5, 2020 in Vienna.

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