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Oil price to plunge as Saudis vow to step up production | Business

Saudi Arabia, the world’s top oil exporter, will step up crude oil production from next month, flooding global markets and most likely depressing petrol and diesel prices, in response to Russia’s refusal to join an Opec plan to cut supplies.

State oil giant Aramco will boost its crude output significantly above 10m barrels per day (bpd) in April, after a previous agreement to limit supplies agreed by Opec and Russia expires at the end of March.

Sources inside Opec who have spoken to Reuters said the move is expected to involve 20% price cuts to customers, with an emphasis on targeting those that hold contracts with Russia.

A barrel of Brent crude has fallen in price since January by a third to almost $45 a barrel following the coronavirus outbreak. Prices dropped by almost 10% on Friday after news broke that the planned Opec deal had foundered.

On Saturday, Aramco slashed its official selling price for April for all its crude grades to all destinations.

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Higher production and price cuts by Aramco are likely to push world prices down further, hurting countries that rely on oil exports for tax income and foreign exchange, especially in Africa, south-east Asia and South America.

The new strategy adopted by Riyadh appears to target Russia and US shale oil firms, many of which are known to have high production costs and lose money when crude prices fall below $50 a barrel for more than a few months.

Other Opec producers, such as Iraq, Kuwait and the United Arab Emirates, are expected to follow Saudi Arabia’s lead with price cuts and increased production from April.

The Saudi decision came after marathon talks at the Opec headquarters in Vienna, when the Russian energy minister, Alexander Novak, said that from 1 April neither Opec nor non-Opec countries had any restrictions on production.

The sources said April’s production would be significantly higher than 10m bpd, possibly closer to 11m bpd. In the past couple of months, Saudi Arabia has been pumping 9.7m bpd.

Saudi Arabia has an oil output capacity of 12m bpd, giving it the ability to swiftly increase production.

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