Oil prices have dropped to its lowest prices since 1991 on Monday, March 9, 2020, Reuters reports.
This comes after Saudi Arabia began a price war with Russia
by reducing its selling prices and pledging to unleash its pent-up supply onto
a market reeling from falling demand because of the coronavirus outbreak.
Prior to this huge reduction, crude prices have been relatively stable. With this latest reduction, prices are generally expected to go down significantly at the various pumps, to ease pressure on consumers.
Brent crude futures fell by as much as $14.25, or 31.5%, to
$31.02 a barrel. That was the biggest percentage drop since January 17, 1991,
at the start of the first Gulf War and the lowest since February 12, 2016. It
was trading at $35.75 at 0114 GMT.
U.S. West Texas Intermediate (WTI) crude fell by as much as $11.28, or 27.4%, to $30 a barrel. That was also the biggest percentage drop since the first Gulf War in January 1991 and the lowest since February 22, 2016. It was trading at $32.61.
Saudi Arabia, the world’s biggest oil exporter, is
attempting to punish Russia, the world’s second-largest producer, for balking
on Friday at production cuts proposed by the Organization of the Petroleum
Exporting Countries (OPEC).
OPEC and other producers supported the cuts to stabilize
falling prices caused by the economic fallout from the coronavirus outbreak.
Saudi Arabia plans to boost crude output above 10 million
barrels per day (bpd) in April after the current supply deal between OPEC and
Russia, – known as OPEC+ – expires at the end of March, two sources told
Reuters on Sunday.
Saudi Arabia, Russia, and other major producers last battled
for market share like this between 2014 and 2016 to try to squeeze out
production from the United States, now the world’s biggest oil producer, as
flows from shale oil fields doubled the country’s output during the last
“Saudi Arabia and Russia are entering into an oil price war
that is likely to be limited and tactical,” Eurasia Group said in a note.
“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,”
Saudi Arabia has opened the war by cutting its official selling prices for April for all crude grades to all destinations by between $6 to $8 a barrel.
Impact of Covid-19
China’s efforts to curtail the coronavirus outbreak has
disrupted the world’s second-largest economy and curtailed shipments to the
largest oil importer.
The spread to other major economies such as Italy and South
Korea and the burgeoning cases in the United States has increased the concerns
that oil demand will slump this year.
Major Banks such as Morgan Stanley and Goldman Sachs have
cut their demand growth forecasts, with Morgan Stanley predicting China will
have zero demand growth in 2020 while Goldman is seeing a contraction of global
demand of 150,000 barrels per day.
In other markets, the dollar was down sharply against the yen, Asian stock markets were set for big falls and gold rose to the highest since 2013 as investors fled to safe havens.
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