The meltdown

Saudi Arabia has responded to Russia’s refusal to cooperate by cutting prices and threatening (credibly, it seems) to raise output:

The kingdom plans to pump more than 10m [million, not thousand] barrels a day next month while announcing unprecedented discounts of almost 20 per cent in key markets, in an apparent attempt to punish Russia, while squeezing the US shale industry and other higher cost producers.

Production could eventually surpass 11m b/d, one of the people said, well above the roughly 9m Riyadh had previously proposed lowering its output to.

It appears that Russia didn’t expect this response. Perhaps it didn’t even believe that Saudi Arabia’s nominal spare capacity was real, especially after the Houthi attacks last year. Now much depends on the market’s appetite for Saudi oil even at these seemingly giveaway prices.

For domestic audiences, the Kremlin is now busily explaining that it actually proposed prolonging the deal for another quarter (technically true) but the Saudis and their allies went for an all-out price war (technically true but missing the key link). Lying by omission doesn’t count in the rulebook of Soviet and post-Soviet propaganda.

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