Oil bloodbath: Part 1 | Economic Divide

What started out as a price war between Saudi Arabia and Russia became one of the key catalysts in the oil price crash that saw global production saturated in excess as there became more oil on the market than demand, meaning, that for the first time ever, one particular market, WTI Futures, saw the price of one barrel of oil hit around minus $40.

With the world suffering multiple layer effects due to the COVID-19 outbreak, the oil producing nations of the world, many of whom rely heavily on oil as their main source of income, started producing more oil to compensate for the losses due to less demand, however, like in any market, when the product outweighs the demand, the price will come crashing down.

As the war raged to gain control of what was left of the market, OPEC saw its production rates hit a 30 year, with Saudi for example pumping out a whopping 11 million barrels oil per day. So, when Russia and Saudi decided to start an oil price war, the Saudi regime decided to undercut the market by around %6-8 per barrel, which of course only made things worse.

Donald Trump stood on the podium gleaming that he was the one who should take credit for bringing about an agreement between Saudi Arabia and Russian when they fell out over the oil prices. Trump stated he did this in order to protect American jobs in the oil and gas sector. What he did not predict was the rapid fall in US oil prices, as the damage had already been done, the US saw its WTI index hit prices in negative territory, at one point hitting minus $37.63 dollars per barrel.

With the US needing to make around $54 dollars per barrel in order to break even, when prices went into negative terrain, it clearly became obvious that the oil producers in the US would become severely affected by the drop in price.