Saudi Arabia has asked state agencies to submit proposals for cuts of between 20% and 30% to their budgets “in a fresh austerity drive to cope with a sharp drop in oil prices” due to a looming price war between Russia and Saudi Arabia, Reuters reports, citing four sources familiar with the matter.
The requests were made “more than a week ago” due to concerns about the impact of the coronavirus epidemic on crude markets, and before the collapse of an oil output deal between OPEC and its allies on Friday.
While neither side would rule out an eventual resolution to the current standoff, a deal between Russia and Saudi Arabia will be difficult to reach, and Saudi Arabia has already begun to ratchet up production, seeking to pump as many as 13 million bpd as soon as possible and seeking out additional tankers to ship the crude.
Reuters is the second to report on the government’s directives to brace for cutbacks, following a Wall Street Journal report yesterday with the same information.
The price of oil fell from above $50 on Brent on March 4 to a close today of $36.29. A surge in supply from Russia, Saudi Arabia and others would put significant downward pressure on the current price, likely putting strain on the Saudi government’s finances and possibly sending the price of oil below $20 or lower.
