Vladimir Putin, in his race for control as in his country, so as outside of it, is trying to find out the fragile spots of the other countries’ economies and hit at this exact spot. And so did happen with the United States. Knowing America’s fragile oil industry is built on a mountain of debt, Putin tries to use this weakness in his own favour.
Thus, when Saudi Arabia announced the production cuts due to oversupply, Putin decided to go right in. Last week, Russia shocked the rest of the world by ending its shaky alliance with OPEC. Namely, recently oil prices experienced a major fall (more than a 9%-decrease) after nations failed to reach an agreement regarding the supply cuts aimed at addressing the collapse in global demand that comes from the coronavirus outbreak.
Therefore, earlier the OPEC cartel led by Saudi Arabia offered a two-pronged approach to its key ally Russia, meaning that two countries extended existing production cuts of 2,1 million barrels through to the end of 2020. Also, it is planned that further cuts of 1,5 million barrels will be put in place per day. But Russia refused to follow the plan and left the future of the OPEC’s three-year alliance in doubt.
After everything was said and done, experts started arguing that this move of Russia was aimed at drowning US sale oil companies that rely on higher prices of oil. Ultimately, the main goal of Putin’s campaign is to get the market share back from America, whose debt-fueled oil caused Russia losing its title as the world’s largest oil producer back in 2018.
Notably, as a result of Russia’s decision not to cooperate with OPEC anymore, US crude that was thriving around this time last year, dropped 26% in its price, which is by far the worst day since 1991. Last Monday, the price for the US oil reached its long-time low of $31.13 a barrel.
Crude is not so cheap that many American companies will have to shut their production lines for a while. Of course, that created an overall fear of bankruptcy in the oil industry and sent the SPDR S&P Oil & Gas ETF to the price it had in 2006.
This energy meltdown worried many because they are concerned that it will be the same as in 2014-2016 when the oil crash bankrupted dozens of American oil and gas companies and caused thousands of people losing their jobs. And even though the industry survived, everyone is still afraid of that experience taking place again.