The Real Reason Oil Prices Crashed | OilPrice.com

The Real Reason Oil Prices Crashed | OilPrice.com:

Here’s a quick question: what happens when a lot of people are producing more and more of a commodity, but fewer people want to buy it? It’s economics for preschoolers. You don’t even need multiple choice answers to guess right.  But here’s another, increased difficulty, question: whose fault is the current oil price crash?

If this were a multiple-choice question, the answers would look something like this: a. Saudi Arabia; b. Russia; c. The United States; d. The coronavirus outbreak; and e. All of the above. The correct answer, of course, is e., if we get past our personal preferences for a culprit. But how much did each of these contribute to the crisis? 

Now that’s a harder question to answer. 

Saudi Arabia used to be the world’s largest oil producer and, more importantly, the world’s cheapest oil producer. This has given the Kingdom a lot of leverage when it comes to controlling oil prices. Prices went where Saudi Arabia wanted, either by shutting off the taps or turning them up to gushing.