After the OPEC+ countries failed to come to an agreement on oil prices, Saudi Arabia dramatically cut its export prices over the weekend, creating the largest single-day oil price drop since the start of the Gulf war in 1991, according to reports.
The Saudi decision to cut prices by nearly 10 percent on Saturday was taken after Russia refused to join OPEC in a large production cut as the coronavirus continues to slow the global economy and, with it, demand for oil.
Oil prices plummeted in trading today.
Global markets reacted with a major sell-off. The Dow Jones Industrial Average opened down 1,884.88 points (7.29%). Trading was temporarily halted on Wall Street as oil price plunge and coronavirus fears cause stocks to plummet.
The failure for Saudi Arabia and the OPEC countries to come to an agreement may lead to a price war for oil, which will affect all producers but be most painful for Iran, Venezuela, and shale producers with higher production costs.
According to Reuters, Shares of Aramco plunged 10% on Monday at start of trading, extending losses from the previous day that saw the stock fall below its initial public offering (IPO) price of 32 riyals.
“The perils of playing a game of brinksmanship with Vladimir Putin were proven in dramatic fashion,” Helima Croft, head of global commodity strategy at RBC Capital Markets, wrote in a Friday note to clients, per CNN. “It is hard to see how the relationship can easily be put back on a solid footing.”
But there is still room for an agreement between Saudi Arabia and Russia, some analysts say.
“The break in a three-year alliance between the Saudi-led oil cartel and Russia to support prices may be temporary. The moves over the weekend may well have been part of a negotiating chess game, and the Saudis and Russians can still reach a compromise,” Clifford Krauss and Stanley Reed write in the New York Times. “But if the collapse is lasting, oil executives say there is nothing to stop oil prices from tumbling to the lowest levels in at least five years.”
