Crude oil prices fell heavily on Monday morning, the highest since 1991, as Saudi Arabia started a price war with Russia, Reuters reported. Saudi Arabia slashed its prices and said it would release its hoarded supply into a market affected by falling demand because of the coronavirus epidemic.
Brent crude futures fell by as much as $14.25, or 31.5%, to hit a low of $31.02 a barrel. That was the biggest percentage drop since January 17, 1991, the beginning of the Gulf War. The prices were at their lowest since February 12, 2016. At 4.02 am GMT, crude oil was trading at $32.17 per barrel, $13.33 lower, or 29.30%, Business Insider reported.
The US West Texas Intermediate was trading 31.37% lower at $28.53 per barrel at 4.02 am GMT, though it had recovered slightly from a low price of $27.10 per barrel. That was also the biggest percentage drop since the first Gulf War in January 1991.
“Saudi Arabia and Russia are entering into an oil price war that is likely to be limited and tactical,” political risk consultancy firm Eurasia Group said in a statement. “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+ [a supply deal between OPEC and Russia] production restraint.”
Saudi Arabia hopes to punish Russia for expressing reluctance on Friday at production cuts proposed by the Organization of the Petroleum Exporting Countries, or OPEC. Russia is the world’s second-largest producer of crude oil, while Saudi Arabia is the world’s largest exporter. OPEC and other producers supported production cuts in a bid to stabilise supply following the coronavirus outbreak, which has killed over 3,500 people globally so far.
Saudi Arabia plans to boost crude output above 10 million barrels per day in April, after the OPEC+ deal comes to an end. The country has begun the price war with Russia by cutting its official selling prices for April for all crude oil grades to all places by between $6 to $8 a barrel.