There was an oil crisis all over the world for a long time. When oil supply was disrupted due to the closure of the Strait of Hormuz, the prices of crude oil started touching the sky. Now Saudi Arabia has surprised everyone with its price cut. This is the first time in two and a half decades that Saudi Arabia has reduced the price of crude oil by $ 11 per barrel in one stroke. As a result, the price of crude oil has become the same as in February. The main reason for this is believed to be increasing competition.
Saudi Arabia has made this cut for its Asian customers because these countries have many options available to them. A survey by Bloomberg had estimated that there could be a reduction of $ 8 but it is even more than that and Saudi Arabia has announced a reduction of $ 11 per barrel in one stroke. This is also $1.5 less than the benchmark of Oman/Dubai, hence remains a topic of discussion.
Why did Saudi Arabia take such a decision?
Due to supply being halted for a long time, the prices have not only increased, but a good amount of stock is also accumulated. Oil prices have suddenly started falling due to the agreement between America and Iran and the opening of the Strait of Hormuz. Now there is a race among all the oil producing countries to sell their crude oil. The problem for the countries of Western Asia is that they have suffered the most due to the closure of the Strait of Hormuz and countries like Russia and America have benefited from it.
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Now there is more competition among all the Arab countries including Saudi Arabia and the quantity of oil is also in abundance. This is the reason why these countries want to sell more and more oil even by reducing the margin. If they are successful in this, they will be able to sell more oil than other countries and will be able to re-establish strong trade relationships with their customer countries.
To understand it in simple words, due to the closure of the Strait of Hormuz for so many days, the supply of oil was reduced. If oil production continues, all the producing countries have accumulated a lot of oil. Now there is more oil and the same number of buyers, so the law of demand and supply applies. Now the one who has to sell more of his oil is reducing the price and by doing so it is expected that a lot of oil will be sold and more profits will also be earned.
Was Saudi Arabia going into loss?
Saudi Arabia, one of the countries with an oil-based economy, produced about 10 million barrels per day in February. In March, due to the war situation, it fell to less than 5 million barrels per day. It declined further in the next two months and Saudi Arabia suffered losses. Wood Mackenzie’s report says that due to this war, Saudi Arabia had to suffer a loss of approximately Rs 42 thousand crores. Now immediately after the opening of the Strait of Hormuz, Saudi Arabia first increased its supply and now by reducing the prices, it is trying to strengthen itself in the competition.
Also read: Hormuz opened, oil prices fall by 4%, what is the impact on the world?
Who will benefit?
In terms of oil, India is considered the biggest refiner in Asia. Many big oil companies in India run refineries and clean crude oil and sell different products. Now only these companies will directly benefit from the cheapness of crude oil. The companies in India which were said to be incurring huge losses, can now avail huge benefits if they buy crude oil from Saudi Arabia.
India buys its crude oil from countries like Russia, Iraq, UAE, Saudi Arabia, Venezuela, Qatar and America. In the recent past, India bought less crude oil from Saudi Arabia and the reason for this was the oil prices. Now, if India buys more oil from Saudi Arabia in case of low prices, then it can also get benefit from it.
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