(RightWing.org) – An oil price war that threatened to devastate the energy industry and pitch several economies into recession has been averted thanks to a bold intervention by President Trump. With crude oil prices at their lowest in almost 20 years, and demand forced down by the coronavirus pandemic, oversupply became a serious problem.
Following a week of often tense negotiations, the world’s major oil producers announced a voluntary production cut of close to 10% late Sunday.
- In early March, Saudi Arabia, the second-largest oil producer, started a price war with the third-largest producer, Russia, following a dispute about production cuts. By raising its production instead, the Saudis pushed world oil prices down by over 25% in the space of three weeks.
- With oil production already outstripping demand, the sudden fall in energy use caused by the coronavirus pandemic had a catastrophic effect; prices crashed even more, and energy companies started running out of space to store unwanted oil.
- Since the end of March. Russia and the OPEC countries have been negotiating a new round of output cuts in an attempt to stabilize prices and preserve jobs and infrastructure in the energy industry.
- However, tensions between the producing nations repeatedly blocked progress. The main dispute was between Saudi Arabia – the informal leader of the OPEC group – and Russia. Until recently, they worked together in what became known as OPEC+, but the Saudi reluctance to cut production seemed to have killed this alliance.
- By the end of last week, it seemed Moscow and Riyadh had come to an agreement – until Mexico stepped in with its own demands, stalling progress yet again.
- That was the last straw for President Trump, who’s been increasingly frustrated by OPEC’s antics for a long time. It’s widely suspected that the Saudis want to keep production high – and prices low – to cripple the growing US shale oil industry. With Brent crude selling for little more than $20 a barrel last week, many US oil producers couldn’t extract oil for less than they could sell it for; tens of thousands of American jobs were on the line.
- Trump ended the impasse Sunday by brokering a compromise between all sides of the dispute that will cut global production by 9.7 million barrels a day. The impact was immediate, with the price collapse halting as soon as markets opened Monday morning.
- Some analysts say the cuts aren’t enough and will only stabilize prices, not push them back up to a sustainable level. However, with such deep divisions between the overseas producers, there’s a limit to what they’ll agree on.
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