Oil prices fell through floor since 1991 on Monday after Saudi Arabia shocked the market by launching a price war against Russia as they tried to cope with the coronavirus outbreak.
Crude is trading down 22 per cent to $32 a barrel. Brent crude, the global benchmark, has also plunged 22 per cent to $35 a barrel. Both oil contracts are on track for their worst day since 1991 Gulf War.
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US oil prices crashed as much as 27 per cent to a four-year low of $30 a barrel.
Late last week, talks between oil cartel Organization of Petroleum Exporting Countries (OEPC) and Russia collapsed as the two sides failed to agree on an output cut deal. This pushed Saudi Arabia, the world’s largest oil producer, to cut its crude prices and announce increase production leading to mayhem in an already oversupplied oil market.
OPEC and other producers supported the price cuts as they sought to stabilize falling prices caused by the economic fallout from the deadly coronavirus outbreak.
The current crude oil prices are just marginally higher than the decadal low of $26 a barrel in early 2016 with analysts fearing that it may touch that level soon.
Saudi Arabia is aiming to boost its crude oil output of over 10 million barrels per day in April after the current supply deal between OPEC Russia i.e. OPEC+ expires in March.
The failure of OPEC-Russia deal on production cuts has the genesis on growing prowess of the United States in oil export market. Russia has been dropping hints that the real target is the US shale oil producers as any production cuts by them help US producers extra space in the market. OPEC led by Saudi Arabia wants production cuts to be expanded in an oversupplied market to prevent further erosion in oil prices that is also facing huge demand squeeze aggravated by the spread of Coronavirus.
Russia and Saudi Arabia and other major oil producers lay battled to acquire market share between 2014 and 2016, as they tried to squeeze majority of the production from the US.
The fear in the market now is that oil prices may crash further as Saudi Arabia is taking aggressive stance and is expected to flood the market with crude in a bid to recapture market share. Analysts have said that Saudi Arabia had slashed its April official selling prices by $6 to $8 a barrel in a bid to retake market share and heap pressure on Russia.
The global developments on oil bore well for India that imports 83 per cent of its domestic oil requirements. Analysts said that the country could save over $30-40 billion in its oil import bill if the current prices hold on for longer during 2020. This fiscals oil imports bill is also expected to fall from the gains on prices in the last two months of the financial year.
The current crude oil prices are just marginally higher than the decadal low of $26 a barrel in early 2016 with analysts fearing that it may touch that level soon.
(With input from agencies)
