The alliance of the major oil producers is on the verge of collapse. Oil prices are sliding deep into the red. This is good news for the global economy.
It should have been a festive anniversary. Exactly three years ago, the Organization of Petroleum Exporting Countries (Opec) expanded its influence on the 24-country Opec+ alliance led by Saudi Arabia and Russia. As recently as last summer, the members of the alliance poured their cooperation into a written agreement.
A “Partnership for Eternity” links Saudi Arabia and Russia, the two countries announced at the time. But only nine months later this partnership has broken down.
Saudi Arabia could not persuade Russia on Friday to support a cut in oil production of 1.5 million barrels per day by the end of the year. Thus, the two countries failed to agree on a common strategy on how to stem the price decline on the oil markets. Since fears of a spread of the coronavirus have rekindled on the financial markets, it is not only the stock markets that have collapsed. Oil prices have also fallen as sharply as they did most recently during the 2008 financial crisis.
But the rift between Saudi Arabia and Russia has once again rapidly accelerated the sell-off on the oil markets. On Friday afternoon, the most important reference price, Brent oil, fell by nine percent to around 46 dollars per barrel (around 159 litres). The price for the US grade WTI fell to around 41 dollars per barrel. This means that oil prices are at their lowest level for around three years.