Saudi Arabia Floods Oil Market with Oil at Discounted Price and its Impacts

Saudi Arabia Floods Oil Market

An oil price war between Arab Saudi and other countries has occurred several times in the oil price history. During the war, Saudi Arabia floods the oil market. The latest war started in 2020 between Saudi Arabia and Russia because the latter refused to cut oil production so that oil prices stayed at a moderate level. 

In March 2020, Saudi Arabia announced that it would increase the oil production from 9.7 million bpd to 12.3 million bpd. The country was flooding the oil market with oil at $25 per barrel for customers in the United States, Europe, and Asia.

Saudi Arabia Floods Oil Market: The Impacts

Selling more volumes of oil at discounted prices has caused a big impact for oil producing countries, especially countries whose government income relies on oil revenue. 

  1. The Impact on Saudi Arabia

Due to this policy, Saudi Aramco cut its capital expenditure to $25-30 billion. The covid-19 pandemic and the fall of oil price have forced Saudi Arabia to increase its debt ceiling and cut the country’s spending.

  1. The Impact on Russia

Before the pandemic, the government of Russia predicted a surplus of $1.14 billion 2020. However, the oil price war and the pandemic have ruined the prediction and it was expected that the country would run at a deficit.

  1. The Impact on Stock Market

Both the oil price war and the covid-19 pandemic, stock markets in most countries suffered from major point drops in early March 2020. The Dow Jones, for example, fell over 7.8%, FTSE MIB contracted by 11%, and S&P fell over 7.6 %.

  1. The Impact on Other Oil Producers

The drop in oil price caused oil producers in North America to cut the drilling of new oil wells. This phenomenon also caused Mexico, Venezuela, and other producers of heavy crude oil to be unable to cover their base operating cost.

Opportunities in Entering Saudi Arabia Oil Market

In recent years, the country has been investing large amounts of funds in healthcare, information technology, education, telecommunication, and other non-oil sectors. However, the oil sector remains an important industry in the country and offers great opportunities for global investors and companies.

The oil and gas sector accounts for about 42% of the GDP. It is predicted that there is about 98% of oil in Saudi Arabia and according to a research, it will last for about 200 years at current consumption level. Therefore, there is a big opportunity for global investors and companies to enter the industry.

However, seeing that it is not the first time that Saudi Arabia floods the oil market with oil at a discounted price, companies and investors from other countries need to have the right strategy in entering and growing the Saudi Arabia oil market.

In order to find out the best strategy, global investors and companies need to get assistance from Market Entry Strategy Saudi Arabia. This company will help them seize the opportunities offered by the Saudi Arabian oil industry so that they will grow and develop successfully in this industry.

Saudi Arabia is the second largest oil exporter in the world and a wealthy nation. However, its oil price war with Russia in March 2020 has sparked some negative impacts to the oil producing countries.

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