Brent crude dropped by as much as $14.25 on Monday, or 31.5%, touching $31.02 a barrel. By 0114 GMT it had steadied at $35.75. Reuters reported from Tokyo that it was the largest percentage fall since Jan. 17, 1991, the opening of the first Gulf War, and the lowest price since Feb. 12, 2016.
U.S. West Texas Intermediate (WTI) crude fell as much as $11.28, or 27.4%, to $30 a barrel. That was also the biggest percentage drop since January 1991, and the lowest since Feb. 22, 2016. WTI was trading at $32.61.
Saudi Arabia opens the taps
The trigger was a Saudi decision to pick a fight with Russia. Saudi Arabia, the world’s biggest oil exporter, cut its official selling prices for April by between $6 to $8 a barrel for every crude grade and every destination. It is trying to punish Russia, the second-largest producer, which balked on Friday at production cuts proposed by the Organization of the Petroleum Exporting Countries (OPEC).
Two sources told Reuters on Sunday that the kingdom plans to push output above 10 million barrels per day (bpd) in April, once the current supply deal between OPEC and Russia, known as OPEC+, runs out at the end of March.
The two sides have been here before. Saudi Arabia, Russia and other large producers fought over market share from 2014 to 2016, aiming to squeeze out output from the United States. American shale fields have since doubled the country’s production over the last decade, and the U.S. is now the world’s biggest producer.
Demand was already sliding
The supply shock landed on a market that was reeling. China’s efforts to curtail the coronavirus outbreak have disrupted the world’s second-largest economy and cut shipments to the largest oil importer. Spread to Italy and South Korea, plus growing case numbers in the United States, has deepened fears of a slump in demand this year.
Morgan Stanley predicts zero demand growth in China in 2020. Goldman Sachs sees global demand contracting by 150,000 barrels per day.
Eurasia Group called the standoff “likely to be limited and tactical.” Its note laid out the likely path: “The most likely outcome of this crisis is entrenchment into a painful process that lasts several weeks or months, until prices are low enough to … some form of compromise on resumed OPEC+ production restraint.”
Elsewhere, investors ran for cover. The dollar slid sharply against the yen, Asian stock markets were set to open with big losses, and gold climbed to its highest since 2013.
Sources
- Saudi Arabia Slashes Oil Prices Ahead of Output Boost | OilPrice.com
- Oil plunges about 30% after Saudi Arabia slashes prices, opens taps
