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SEPTEMBER 2020

U.S. Closing 52% Of Oil Rigs, As Both It And Saudi Arabia Slip Into Deeper Crisis

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U.S. Closing 52% Of Oil Rigs, As Both It And Saudi Arabia Slip Into Deeper Crisis

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The reduction in global fuel demand has led to the fact that the number of oil rigs in the US has dropped to a historic low, Reuters reported, citing data from Baker Hughes.

According to data on the week ending on May 17th, the number of towers decreased by 35, to 339.

This is the lowest figure since 1940, when Baker Hughes began to publish relevant statistics.

The reduction in the number of towers affected West Texas and the eastern part of the state of New Mexico, where the main oil and gas production in the USA is conducted.

There, their number decreased to 175, which is the lowest number since 2016.

Since the beginning of the year, the number of operating rigs in the United States has declined by 52%. More than 400 installations stopped working.

The suspension of activity began in mid-March, when oil prices fell sharply after disruption of the OPEC + deal.

Analysts suggest that this process will continue in the near future. Simmons Energy suggests that 215 drilling rigs will remain in the country next year and their recovery will be very slow. For comparison: in 2019, 943 units worked in the USA.

It is expected that global consumption will drop from a record 100 million barrels. per day up to 92.6 million barrels.

On May 18th, the cost of a barrel of North Sea Brent was $34.51, Texas WTI – $32.13.

At the same time, this drop in crude oil prices, Saudi Arabia may be forced to reduce how much money it spends on weapons. This is significant since, Riyadh’s weapon purchases are a way to increase its influence around the world.

According to experts, Saudi Arabia may have to abandon new arms contracts and postpone already agreed arms purchases, as the kingdom is plunging into a financial crisis.

The expected delay in the conclusion of new arms deals can have long-term political consequences for a country under the rule of Crown Prince Mohammed bin Salman, who is waging a war against the Houthis in Yemen, and is losing, even with full investment.

“I have no doubt: this is the end of an era. The era when the Persian Gulf had all this money is over,” said Bruce Ridel, a CIA veteran and senior researcher at the Brookings Institution.

Last year, Riyadh spent about $62 billion on weapons, ranking fifth in the world in military spending.

Although this figure was lower than in 2018, it still amounted to about 8% of Saudi Arabia’s GDP. Thus, the country spent on weapons an impressive share of its wealth – more than the United States (3.4%), China (1.9%), Russia (3.9%) or India (2.4%), based on Stockholm International Peace Research Institute (SIPRI) data.

For decades, military spending has strengthened Riyadh’s political influence in the world, the newspaper notes.

“If Saudi Arabia were not one of the largest buyers of weapons, then probably it would be impossible to count on support devoid of criticism from the powerful Western powers. One of the outcomes of arms purchases is that you buy relationships,” said Andrew Feinstein, an expert on corruption and the global arms trade.

This economic crisis Saudi Arabia is in is characterized by three blows that it suffered:

  1. The first of them was inflicted by an unprecedented drop in oil demand on world markets, which, in turn, led to a drop in commodity prices and a reduction in the country’s income from oil.
  2. The second blow is those extraordinary measures that the state should have taken to combat the epidemic of coronavirus and which actually led to the complete cessation of trade and economic activity within the country, which ultimately led to the actual cessation of “non-oil” exports and, again, the cessation of economic growth.
  3. The third blow to the economy of Saudi Arabia is the unplanned expenses of the country, associated again with the epidemic of coronavirus, and those measures that were supposed to strengthen public confidence in the health sector.

Essentially, it would appear that the Saudi-initiated crude oil price war backfired heavily, and the two parties suffering the most from the rapid drop in prices and the on-going crisis are Washington and Riyadh.

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