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9 Mar, 2020 13:08

Reasons behind market panic investigated: Has Saudi Arabia learned from its past oil gambling mistakes?

Reasons behind market panic investigated: Has Saudi Arabia learned from its past oil gambling mistakes?

The country that pulled the final trigger to send oil prices into a freefall, Saudi Arabia, may suffer most from the oil market turmoil, analyst Kamel Wazne says, noting that Riyadh has already made such an error before.

Global markets were already on edge due to slowing economic growth and the coronavirus epidemic, when OPEC and allied oil-producing states failed to come to an agreement last week. As Russia turned its back to deeper output cuts fearing that the US would just take its market share, Saudi Arabia decided to restrain itself from cutting production and offer a discount for its crude exporters.

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The move triggered chaos in the oil markets, with prices of oil falling to levels unseen since the 1991 Gulf War. However, the move, already labeled as the start of an oil price war, could be a simple miscalculation on the Saudi side, Lebanon-based analyst Kamel Wazne believes.

“[They] have not learnt from the mistake they made way back may be five-six years [ago], when they gambled on increasing production and it harmed their economy,” he told RT. “Today they’re probably making the same mistake.”

In 2015, the kingdom decided not to scale back on production, sending oil prices down. Riyadh stressed that it could stay afloat longer than fellow oil majors, including American shale companies. Plummeting crude prices could backfire for Riyadh this time, Wazne noted, explaining that the Saudi economy is heavily dependent on oil revenues and already has a $50 billion budget deficit.

The bearish trend for oil could actually be fatal for US shale producers, the analyst added. The companies need to make some profit, otherwise investment in this sector will be halted, according to Wazne.

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