In what is being described as using the nuclear option, Saudi Arabia will boost its crude oil production to record levels in retaliation for the breakdown of the talks for an agreement on oil production with Russia.
Marking the escalation of the global price war, state-owned oil giant Saudi Aramco said on Tuesday that it would increase its crude oil production to 12.3 million barrels a day from April, a record amount. This is more than the full capacity of the company and experts suggest that it will draw on its strategic reserves across the world to deliver on this promise.
This marks a huge jump of over 300,000 barrels a day and is a step seen as one to flood the global oil markets taking forward the acrimony of the last few days with Russia.
Calculations suggest that Saudi Arabia will make more money even with the glut. It is being suggested that a 9 million barrel production at $50 per barrel earns $450 million a day while 12.3 million at a much lower crude price of $38 will fetch $476 million a day in revenues.
Saudi Arabia and its Crown Prince Mohammed bin Salman are seen to be giving a signal of dominating the crude markets in the price war with Russia. The moves also come at a time when there are reports of palace intrigue in the Saudi Kingdom after the Crown Prince arrested some of his relatives.
The increase in supply and the coronavirus scare caused a 25 per cent decline in the price of crude on Monday, the sharpest decline seen since the 1991 Gulf War. International benchmark Brent crude traded up over 7 per cent on Tuesday at nearly $37 a barrel.
In a regulatory filing on Tuesday, Aramco said that the increase in production represented a rise of 300,000 barrels per day.
Earlier, Aramco had made the steepest cut in crude oil prices in nearly 20 years as it set out to gain market share and dropped prices for American buyers by $7 and Asian buyers by $4-6 a barrel.