The Oil-Price War Could Drag On, and Cut Deeply

Oil prices crashed 22% on Monday after Saudi Arabia dramatically cut prices of its oil exports, starting a market-share war with Russia and other producers. Amid a larger rout for stocks, shares of oil companies have gone into an even deeper tailspin, with some major U.S. firms dropping more than 20% in premarket trading. After OPEC and other oil exporters failed to reach a deal on production cuts on Friday—as Russia balked at reducing output—Saudi Arabia plans to boost the amount it pumps to more than 10 million barrels per day from 9.7 million, and perhaps even more than 11 million barrels. The country is offering wide discounts to international customers in an attempt to undercut competitors—Russia, in particular. Saudi Aramco, the state-run oil company, can make money at prices as low as $8, analysts say. As prices fall, Saudi Arabia is playing a game of chicken it can win, at least in the short term. But even if Saudi Arabia can technically make money at oil prices below $10, crude won’t be going that low. The kingdom has the capacity to produce more than 12 million barrels of oil per day. But even in a global recession, the world will likely use more than 90 million barrels a day...MORE