Under pressure for weeks due to the Covid-19 outbreak, black gold prices literally collapsed on Monday, March 9, after Saudi Arabia’s surprise decision to increase oil production while cutting prices. This was a disaster for African exporting countries, already weakened by the significant drop in Chinese demand.
Having caught the attention of a small number of observers, the Saudi decision to flood the planet with oil at a broken price follows the Russian refusal, on Friday 6 March, to align itself with the member countries of the Organisation of Petroleum Exporting Countries (OPEC), to limit crude production and thus make it possible to support prices in an international context of major crisis. Quoted by the Ria Novosti press agency, Mikhail Leontiev, spokesman for Russian energy giant Rosneft, explained that « from the point of view of Russian interests, this agreement [to reduce production] [made] no sense », insofar as withdrawing the Arab and Russian supply at low prices from the market was tantamount to « giving way to American shales at high prices, to make their industry profitable. Our production would simply be replaced by that of our competitors, » he concluded. As a result, the shock announced by the respective decisions of Russia and Saudi Arabia « may well lead to the most devastating oil price wars in recent history, » the specialized site Oilprice.com predicts.
In fact, after having lost more than 13% during the previous week, the price of Brent literally capitulated in the first trades of Monday, March 9, the latter plunging by more than 25%, to 34 dollars. A threshold that had not been seen since the historically low levels of February 2016, at the height of the oil counter-shock of 2014-2016 (see graph below) .
Brent’s course. Evolution since February 2016
But more than that, « what makes this price war particularly serious is that it coincides with a massive demand crisis due to the coronavirus, » says Robert McNally, president of the consulting firm Rapidan Energy Group, quoted in the Wall Street Journal.
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A chain of events that is setting the world on fire, with potentially catastrophic consequences for oil-exporting African countries. With national budgets based on a barrel of oil at $50 or even more than $60, countries such as Algeria, Angola, Libya, Congo and Nigeria – whose growth is already precarious – would see their economies severely shaken by this oil tidal wave. A scenario that unfortunately seems increasingly plausible.