By Sandra Harris
On top of a plummeting stock market, the world’s major oil producers are in a price war over the cost of oil. On March 9, stock markets worldwide reported major losses after unexpected price discounts on oil from Saudi Arabia. Saudi Arabia increased production and sold oil at sharply discounted prices during declining oil demand, which sent shockwaves through oil markets and stock markets. They did it at the same time as the COVID-19 outbreak which halted business and tourism activity globally– essentially creating a simultaneous demand and supply shock.
This is primarily a crisis of overproduction, and with no clear end to the global slowdown as a result of the imperialist response to COVID-19, it is possible the oil industry could run out of places to store unsold oil, and oil consultants have added that oil storage could fill in some places within 30 days.
The Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and non-member Russia had initially restrained their own oil production to keep prices around $50 a barrel. In early March, following Russia’s refusal to further cut production, Saudi Arabia discounted oil to undercut other producers.
Saudi Arabia, which has some of the lowest oil production costs in the world, has historically served US imperialism and been a primary ally in oil production. However, their interests have shifted as they have sought to diversify and limit their reliance on oil production. Russia is against OPEC and primarily Saudi Arabia, but Russia has aimed to harm the US primarily, who has emerged as a competitive oil exporter through this ongoing struggle between oil-producing powers.
Trump initially welcomed the declaration of a price war between Saudi Arabia and Russia, hailing lower oil prices as good news for the US. Since 2014, American companies have intensified extracting shale oil (one of the more polluting methods of production) with new subsidies, new technology, and high oil prices, which let the US become more self-reliant on oil, making it possible for the US to put multiple economic sanctions on its oil-producing opponents like Iran and Russia. US output had been at a record-high production of around 13 million barrels a day.
Over the past month, Trump’s enthusiasm has dropped as thousands of jobs in oil-producing states like Texas and Oklahoma have been cut amid economic panic in the United States. He has since called for an end to the price war. On April 2, he said he had reached an agreement with Saudi Arabia and Russia to cut production, but prices fell again. Worldwide, oil demand has dropped by about 30 percent.
Following a meeting with US oil executives, Trump praised US oil companies and declared, “It’s a free market, and they’ll figure it out.” Saying that tariffs on Saudi Arabia and Russia are “certainly a tool in the toolbox.” US oil producers have already signaled opposition to slowing production due to job losses.
Another meeting between Saudi Arabia and Russia is expected late this week. Oil prices fell at the beginning of the week around ongoing uncertainty of production cuts that Saudi Arabia and Russia would come to consensus on output. Prices are so volatile that any information about the direction of the negotiations could move the prices either way.
Instead of curtailing production, even countries that usually subordinate themselves to US imperialist interests are finding ways to subvert competitors amidst a worldwide economic depression. With oil producers at odds with each other, the capitalists respond by doubling down, pushing competition amidst overproduction in the worldwide capitalist market.