Saudi Arabia starts price war on Monday with selling one barrel at US$6-US$8 discount. The unexpected move to undercut everyone else when oil prices already falling, middleeasteye reports.
Riyadh’s unprecedented move to slash prices comes after Russia blocked a bid to cut output aimed at countering coronavirus impact. Under current circumstances, the price fall then battered revenues in the Arab world countries, forcing them to resort to immediate measures and borrowing to plug budget deficits.
While the equity markets are being hammered by the coronavirus outbreak, Saudi Arabia’s intention to collapse in oil prices added to pressure on them. In fact, Saudi strategy to grab market share made a stir among the Gulf countries.
On Monday, oil prices plunged by almost a third, making the biggest drop since the 1991 Gulf War, the experts say. For Saudi Arabia, a top oil exporter, has launched a price war after Russia blocked a bid to cut output.
In ferocious trading, both main crude contracts nosedived following Riyadh’s shock move to slash prices after the alliance between oil-exporting group OPEC and its partners fell apart.
At a meeting last week, Saudi Arabia led a push by OPEC ministers to reduce output to counter the impact of the coronavirus outbreak – but it hinged on agreement from the group’s allies, foremost among them Moscow.
However Moscow, the world’s second-largest oil producer, refused to tighten supply and Riyadh then drove through the biggest cuts to prices in 20 years on Sunday, unleashing pandemonium on crude markets.
Saudi equities tanked more than nine percent in response with oil titan Aramco losing 10 percent. The collapse in prices could have far-reaching consequences, observers warned, from battering revenues in energy-dependent countries, to triggering the cancellation of oil exploration projects and even sparking global deflation.
Monday has started with the shockwave across financial markets, Margaret Yang, an analyst from CMC Markets. It is obviously that Riyadh’s move is just punishing Russia. For April, Saudi Arabia has cut its price delivery by $4 to $6 a barrel to Asia and $7 to the US. It is important to note that the local Aramco is selling its Arabian Light at an unprecedented $10.25 a barrel less than Brent to Europe.
The new developments are reminiscent of the oil price war that erupted in 2014 and sent oil prices crashing to less than $30 a barrel.