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Saudi Arabia to Cut Crude Oil Price: OPEC cuts did not do the trick intended

 

Oil Price on Monday

The investor lethargy continues in the oil markets in proportion to the degree of negative sentiment that looms over it.

The early drop in price in Brent crude and WTI crude, 1.35% and 1.6% respectively on Monday, just reflects the current pessimistic mood in the markets.

With the production cuts initiated by the OPEC having no desired effect on the crude oil price, Saudi Arabia cut prices to Asia, its largest market by region, in order to address the dwindling sales.

On the ground, meanwhile, data shows that refineries cut output owing to weak demand. For instance, in the US, the world’s biggest oil user, the price of gasoline dropped to its lowest level since 2004 at the weekend before its Labour Day Monday, according to the EIA.

The situation in China on this front is no different: the country that went on an accelerated buying spree during the pandemic, cashing in on the record-low prices, has since backed down; the storage facilities appear to be in full capacity and lots of tankers remain at ports with crude supplies.

During the pandemic, China’s relationship with the West, especially the US, deteriorated with the accusations ranging from ‘poor handling’ of the coronavirus crisis to its ambitions on the expansion of 5G networks.

Analysts believe that this factor cannot be underestimated, because China is the world’s second largest economy.

There is more bad news for traditional oil producers, coming from the US. There are reports of opening new oil and gas rigs, after a lull in activities; they may have been encouraged by the rise in crude oil price in the last few months, after the peak of the pandemic appeared to be behind us.

On a positive note, there is still a possibility of lifting up the lacklustre sentiments in the markets as a whole, if the governments collectively embark on giving stimulus packages to the struggling sectors – as one way of recoveries.

They worked in the past.

For instance, in the aftermath of the global economic crisis in 2009, the UK introduced such a mechanism to safeguard the car industry, which was very badly struggling.

After the 9/11 attack, the airline industry was rescued by a similar attempt, when people chose twice before flying on an aeroplane.

In short, bold, timely measures have the potential to shore up the sentiments and get the economies back on track in few months. It’s, however, only possible if the powerful leaders leave aside the petty political inconveniences for a noble, global goal.

 

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