Saudi Arabia Has Started The Game Against Russia
- 1.06.2025, 10:39
The global oil market is on the verge of a new "price war".
OPEC+ ministers at a meeting on Saturday, May 31, agreed on a decision to further increase oil production - by 411,000 barrels per day from June, the organization said in a release, according to The Moscow Times.
Another OPEC+ supply increase took place in May and is scheduled for June. So in three months, the cartel of three dozen major oil-producing countries will add 1.2 million barrels of new daily supply to the market - the maximum since 2020, when OPEC+ lifted the tight restrictions imposed in the pandemic.
At the OPEC+ meeting, a rift emerged between two of the organization's key members, Saudi Arabia and Russia. Sources told Bloomberg that the Russian delegation opposed the production increase, which could further drop oil prices and bode well for the Kremlin's budget problems. But the Saudis sold the decision because they want to fulfill a request from the administration of Donald Trump, who has publicly demanded lower oil prices, the sources said.
It is possible that the global oil market is on the verge of a new "price war," ING analyst Warren Patterson said. This already happened in 2020, when Russia refused to cut production at the start of the pandemic to balance the market and slammed the door and left the OPEC+ alliance. The shocked Saudis responded by announcing unprecedented discounts on their oil, sharply raising production and dropping oil prices first to $5-10 a barrel and then below zero. A month later, the Kremlin was forced to capitulate: Russia returned to OPEC+ and under the new deal was forced to cut production the most.
Saudi Arabia's plan is to increase OPEC+ production by 2.2 million barrels per day. Moreover, if initially Riyadh planned to stretch the process until the end of 2026, now it insists that the new supplies will flow into the market this year. The result could be a drop in the price of Brent to $50-60 per barrel, predict analysts JP Morgan. The Russian Urals grade is now being sold at a discount of at least $10 to Brent, which means that its quotations could fall into the range of $40-50.
The Russian government initially prepared the budget with an average Urals price of $69.7 per barrel. But in the spring, when Donald Trump started tariff wars and Saudi Arabia decided to "turn the taps" on its oilfields, it became clear that the forecast was not feasible. In March, the Urals price fell below $60, by the end of April it was only $54, and in May it barely exceeded $50.
In response, the Ministry of Finance and the Ministry of Economic Development recalculated the budget parameters with oil at $56. According to the new plan, oil and gas revenues will amount to 8.3 trillion rubles instead of 10.9 trillion, and the budget deficit will be three times higher than the original estimates - 3.8 trillion rubles instead of 1.2 trillion.
Saudi Arabia needs oil at $90 to balance the budget, Patterson estimates. However, he admits, Riyadh can lower this bar by pumping more and capitalizing on volumes.