WASHINGTON—Oil prices fought to regain ground yesterday amid an escalating price war between Saudi Arabia and Russia, with Riyadh and Moscow set to raise output as financial markets churn over the worldwide coronavirus disease 19 (COVID-19) epidemic. To relieve some of the pressure, the Trump Administration announced yesterday that it would postpone a planned sale from the government’s Strategic Petroleum Reserve (SPR), the Wall Street Journal reports.
“Given current oil markets, this is not the optimal time for the sale,” the U.S. Energy Department said in a statement. The sale was meant to raise revenue for SPR facility maintenance and upgrades.
Monday saw crude oil prices mark their biggest one-day percentage drop since 1991, although the benchmark Brent crude price gained yesterday. Saudi Arabia this past weekend intensified an ongoing clash with Russia over crude output, igniting a price war that roiled global financial markets. The move came after Moscow rejected a plan by the Organization of the Petroleum Exporting Countries to cut crude output as the COVID-19 crisis saps demand in China, the epicenter of the outbreak, and other nations.
Yesterday, state-run Saudi Arabian Oil Co. said it would boost production in April to 12.3 million barrels a day, while Russia’s Energy minister said Russia stood ready to pump more crude, the Wall Street Journal reports. Behind the scenes, however, the two sides are reportedly in talks over production output.
The impact to the overall domestic energy market may hinge on how long Saudi Arabia and Russia engage in their price war—and whether it triggers a recession, analysts say. “The fear today is about a global recession,” Thomas Hayes, chairman of hedge-fund management firm Great Hill Capital, told the Wall Street Journal. “If Russia does not come back to the table soon, investors worry the default risk and credit spreads widening will lead to tighter credit and even a recession.”
Also yesterday, the United States and Australia inked a deal for Australia to lease space in the U.S. SPR to store and access Australian owned oil, the Energy Department announced. U.S. Secretary of Energy Dan Brouillette and Australia’s Energy and Emissions Reduction Minister Angus Taylor signed the agreement at DOE headquarters in Washington, D.C.
Under International Energy Agency obligations, Australia and other member countries are required to hold oil reserves equal to 90 days of the previous year’s net imports and are permitted to hold these reserves offshore where a bilateral arrangement is in place, the Energy Department noted.