Why the opec russia blowup sparked all out oil price war

The OPEC-Russia blowup, also known as the "oil price war," refers to the sudden and dramatic collapse of the OPEC+ agreement in March 2020, which led to a global oil price war. Here's a brief summary of the events that led to the blowup:

Background:

In 2016, OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC producers, led by Russia, formed an alliance to stabilize the global oil market. The agreement, known as OPEC+, aimed to reduce oil production to balance the market and boost prices. The agreement was extended several times, with the most recent extension being in December 2019.

The disagreement:

In March 2020, OPEC+ was set to meet to discuss extending the agreement again. However, Russia, which had been a key player in the alliance, began to show signs of hesitation. Russia's oil minister, Alexander Novak, hinted that his country might not agree to extend the agreement, citing concerns about the impact of low prices on its economy.

The blowup:

On March 6, 2020, OPEC+ failed to reach an agreement on extending the production cuts. Russia refused to join the agreement, citing concerns about the impact of low prices on its economy. Saudi Arabia, which had been a key player in the alliance, responded by announcing that it would increase its oil production to 12.3 million barrels per day (mb/d), up from 9.7 mb/d. This move was seen as a direct challenge to Russia's refusal to join the agreement.

The oil price war:

The collapse of the OPEC+ agreement led to a global oil price war. Saudi Arabia, which had been the swing producer in the alliance, increased its oil production to fill the gap left by Russia's refusal to cut production. This led to a surge in global oil supply, which put downward pressure on oil prices.

Russia, which had been the second-largest producer in the alliance, responded by increasing its own oil production to take advantage of the higher prices. This move was seen as a direct challenge to Saudi Arabia's dominance in the oil market.

The consequences:

The oil price war had significant consequences for the global oil market. Oil prices plummeted, with Brent crude falling to around $30 per barrel in April 2020, down from over $70 per barrel in January 2020. The price war also led to a significant decline in oil demand, as countries around the world implemented lockdowns and travel restrictions to combat the COVID-19 pandemic.

The aftermath:

The oil price war eventually subsided in May 2020, when Saudi Arabia and Russia agreed to a temporary truce. The two countries agreed to reduce their oil production by 1.2 million barrels per day (mb/d) to stabilize the market. The agreement was seen as a temporary fix, and the two countries have since continued to engage in a price war, with Saudi Arabia and Russia taking turns to increase and decrease their oil production to influence the market.

In summary, the OPEC-Russia blowup was sparked by Russia's refusal to extend the OPEC+ agreement, which led to a collapse in the alliance and a global oil price war. The price war was fueled by Saudi Arabia's decision to increase its oil production and Russia's response to increase its own production. The consequences of the price war were significant, with oil prices plummeting and global oil demand declining sharply.