Dear MEL Topic Readers,
Saudi Arabia has launched the ultimate oil
power play.
Never initiate a price war unless you’re the
lowest cost player. A golden rule for any business. Though the world is
shifting from fossil fuels to renewable energies, oil still is the major source
of energy. Without oil, cars won’t drive, ships won’t sail, and airplanes won’t
fly. Of the roughly 80 million barrels of crude oil produced daily, the US
produces 15 million, Saudi Arabia 12, and Russia 10. So, any of these three giants
has a significant impact on oil supply and prices in the world. Now, Saudi
Arabia initiated a price war by increasing production, and the crude oil prices
slide to $20 per barrel, which had been fluctuating between $40 and $60 per
barrel for the last five years.
How could the kingdom do that? Is the cost to
produce and ship oil significantly cheaper than the US or Russia? Actually,
yes. Wall Street Journal estimated the average cost for a barrel of oil in the
US and Russia are around $20 while that of Saudi Arabia is less than $10. Half
the cost!
However inexpensive their production cost
might be, the lower the prices are, the less profitable the supplier is going to
be. So why a price war?
Enjoy reading the article and learn why a
crude oil price war amid COVID-19 pandemic.
No comments:
Post a Comment