Amid coronavirus scare across the world, oil prices plunged to lowest in 29 years as after Saudi Arabia slashed prices and set plans for a big increase in crude production in April. Oil plummeted by almost 25 per cent on Monday as the top exporter initiated the price war in response to a failure by leading producers to strike a deal to support energy markets.
The two main contracts both lost about a fifth of their value in morning Asian trade, with West Texas Intermediate sliding to about $32 a barrel and Brent crude to about $36 a barrel. Brent futures are on track for their biggest daily decline since January 17, 1991, at the start of the first Gulf War. The US benchmark is potentially heading for its biggest decline on record, surpassing a 33 per cent fall in January 1991.
Saudi Arabia launched the all-out oil war Sunday with the biggest cut in its prices in the last 20 years after a failure by cartel OPEC and its allies to clinch a deal to cut production. A meeting of OPEC+, comprising OPEC countries plus Russia, was expected to agree to deeper cuts to counter the impact of the new coronavirus—but Moscow refused to tighten supply.
In response, the Gulf powerhouse cut its price for April delivery by $4-6 a barrel to Asia and $7 to the United States, with Aramco selling its Arabian Light at an unprecedented $10.25 a barrel less than Brent to Europe, Bloomberg said. Reportedly, Saudi Arabia plans to boost its crude output above 10 million barrels per day (bpd) in April after the current deal to curb production expires at the end of March.
Jeffrey Halley, senior market analyst at OANDA, said that "Saudi Arabia seems intent on punishing Russia. "Oil prices... will likely be capped over the next few months as coronavirus stalls economic growth, and Saudi Arabia opens the pumps and offers huge discounts on its crude grades."
Global markets in the red
Global markets had already fallen heavily in recent weeks due to fears about the coronavirus, which has killed thousands and has spread around the world since emerging in China late last year. Tokyo stocks were hit heavily hit at the open Monday on fears over the virus and the plunge in oil prices, with the dollar down against the yen.
The new developments are reminiscent of the oil price war that erupted in 2014 and sent oil prices crashing to less than $30 a barrel. The price fall then battered revenues in the Gulf countries, forcing them to resort to austerity measures and borrowing to plug budget deficits.
On Sunday, shares in the energy-dependent Gulf plunged to multi-year lows after the failure to clinch a deal on production cuts, with all seven bourses in the region in the red.