Oil prices suffered an historic collapse late Sunday after Saudi Arabia shocked the market by launching a price competition against onetime ally Russia.US oil prices crashed the maximum amount as 27% to a four-year low of $30 a barrel as traders brace for Saudi Arabia to flood the market with crude during a bid to recapture market share.
Crude was recently trading down 22% to $32 a barrel. Brent crude, the worldwide benchmark, also plunged 22% to $35 a barrel. Both oil contracts are on target for his or her worst day since 1991, consistent with Refinitiv.
The turmoil comes after the implosion of the oil alliance between OPEC and Russia on Friday.
Oil just had its worst day in 11 years as OPEC and Russia fall out over the coronavirus crisis
Russia refused to travel along side OPEC's efforts to rescue the coronavirus-battered oil market by cutting production. The failure of the Vienna meeting left the refining industry shell-shocked, sparking a tenth plunge in oil prices Friday. Oil prices were already stuck during a market due to the coronavirus outbreak that has caused demand for crude to fall sharply.
But then Saudi Arabia escalated things further over the weekend. the dominion slashed its April official selling prices by $6 to $8, consistent with analysts, during a bid to retake market share and heap pressure on Russia.
"The signal is Saudi Arabia is looking to open the spigots and fight for market share," said Matt Smith, director of commodity research at ClipperData. "Saudi is rolling up its sleeves for a price competition ."
The biggest one-day percentage drop for US oil prices this century occurred in September 2001 once they plunged 15%, consistent with Refinitiv statistics that return to 2000.
Analysts said that Russia's refusal to chop production amounted to a slap to US oil producers, many of which require higher oil prices to survive.
"Russia has been dropping hints that the important target is that the US oil producers, because it's uninterested with cutting output and just leaving them with space," analysts at energy consulting company FGE wrote during a note to clients Sunday. "Such an attack could also be doomed to failure unless prices remain low for an extended time."
The 2014-2016 oil crash caused dozens of oil and gas companies to file for bankruptcy and many thousands of layoffs. However, the US shale industry emerged from that period stronger and therefore the us would eventually become the world's leading oil producer.
"The perils of playing a game of brinksmanship with Putin were proven in dramatic fashion," Helima Croft, head of worldwide commodity strategy at RBC Capital Markets, wrote during a Friday note to clients. "It is tough to ascertain how the connection can easily be replace on a solid footing."
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