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Oil suffers rout after Saudi Arabia fires first shot of price war

Commodities Mar 09, 2020 04:00AM ET
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By Aaron Sheldrick

TOKYO (Reuters) - Losing more than a quarter of their value, oil prices were set on Monday for their biggest daily rout since the first Gulf War, after Saudi Arabia cut its official prices in a market already reeling from the impact of the coronavirus on global demand.

Saudi Arabia slashed its official selling prices and made plans to ramp up crude output next month after Russia balked at making a further steep output cut proposed by the Organization of Petroleum Exporting Countries to stabilize oil markets.

Brent (LCOc1) crude futures were down $11.38, or 25%, at $33.89 a barrel by 0732 GMT, after earlier dropping to $31.02, their lowest since Feb. 12, 2016. Brent futures were on track for their biggest daily decline since Jan. 17, 1991, when prices dropped at the start of the first Gulf War.

U.S. West Texas Intermediate (WTI) crude (CLc1) fell by $11.12, or 27%, to $30.16 a barrel, after touching $27.34, also the lowest since Feb. 12, 2016. The U.S. benchmark was potentially heading for its biggest decline on record, surpassing a 33% fall in January 1991.

"The timing of this lower price environment should be limited to a few months unless this whole virus impact on global market and consumer confidence triggers the next recession," said Keith Barnett, senior vice president strategic analysis at ARM Energy in Houston.

The disintegration of the grouping called OPEC+ - made up of OPEC plus other producers including Russia - ends more than three years of cooperation to support the market.

Saudi Arabia plans to boost its crude output above 10 million barrels per day (bpd) in April after the current deal to curb production expires at the end of March, two sources told Reuters on Sunday.

The world's biggest oil exporter is attempting to punish Russia, the world's second-largest producer, for not supporting the production cuts proposed last week by OPEC.

Saudi Arabia, Russia and other major producers last battled for market share like this between 2014 and 2016 to try to squeeze out production from the United States, which has grown to become the world's biggest oil producer as flows from shale oil fields doubled over the last decade.

"The deal was always destined to fail," said Matt Stanley, senior broker at Starfuels in Dubai.

"All that happened was, and all that has consistently happened since the inception of the cuts, has been that U.S. shale producers have gained market share."

Saudi Arabia over the weekend cut its official selling prices for April for all crude grades to all destinations by between $6 and $8 a barrel.

"The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus," Goldman Sachs (NYSE:GS) said.

VIRUS IMPACTS DEMAND

Meanwhile, China's efforts to curtail the coronavirus outbreak has disrupted the world's second-largest economy and curtailed shipments to the biggest oil importer.

And the spread of the virus to other major economies such as Italy and South Korea and the growing number of cases in the United States have increased concerns that oil demand will slump this year.

Goldman Sachs and other major banks such as Morgan Stanley (NYSE:MS) have cut their demand growth forecasts, with Morgan Stanley predicting China will have zero demand growth in 2020. Goldman sees a contraction of 150,000 bpd in global demand.

Goldman Sachs cut its forecast for Brent to $30 for the second and third quarters of 2020.

In other markets, the dollar was down sharply against the yen, Asian stock markets sharply lower, and gold rose to its highest since 2013 as investors fled to safe havens. [MKTS/GLOB]

Oil suffers rout after Saudi Arabia fires first shot of price war
 

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Comments (29)
Ron Warren
Ron Warren Mar 09, 2020 8:10AM ET
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The oil rout is very alarming! The US economy would have no problem surviving a downturn in the market. Oil is too large a playet and responsible for a whole lot of our wealth. Much default in the private sector as well as producers.
Anjoo Streigle
Anjoo Streigle Mar 09, 2020 7:25AM ET
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Games ppl (countries) play.....POWER PLAY when it's really about something else
vincent li
vincent li Mar 09, 2020 7:11AM ET
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these people are manipulating the oil market as always and the global markets to kick out the retail investor out..i just buy the dip ...on fear events.
vincent li
vincent li Mar 09, 2020 7:08AM ET
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total scamz , these rich oil dealers know what they are doing to affect the markets to kick out the retail investor and buy low sell high
Tobias Mueller
Tobias Mueller Mar 09, 2020 7:08AM ET
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Why you don‘t the same?
Black Beard
Black Beard Mar 09, 2020 1:54AM ET
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this is a contrived scam to punish markets and pick up oil producers etc on the cheap. i bet within 24 hrs the market will reverse the bad news into positive. Market manipulation all the main players are in on it.
ali al
ali al Mar 09, 2020 1:53AM ET
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Who's buying at this price🤔
Eric K Ko
Eric K Ko Mar 09, 2020 1:53AM ET
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,“I did, WTI @ 29”Ok...and how/where did you buy when the markets weren’t open?
Henry Garcia
Henry Garcia Mar 09, 2020 1:43AM ET
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I understand Russia' decision to back away from production cuts. The Saudis' maneuver will hit Americans for sure. Every time OPEC+ cuts production, Americans increase drilling. As a result, OPEC+ actions do not deliver the expected results. Americans or Trump will get the message now for sure.
Andrew Hook
Andrew Hook Mar 09, 2020 1:43AM ET
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Yes, but not sure Trump could understand the point. 45 IQ doesn't help
Ben Dover
Ben Dover Mar 09, 2020 1:41AM ET
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This is to *******US shale and also a big middle finger to Russia.
Peter Dikeakos
Peter Dikeakos Mar 09, 2020 1:39AM ET
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Trump The American Lord Of Bankruptcy. Let's Call Him NERO II.
Andrew Hook
Andrew Hook Mar 09, 2020 1:39AM ET
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remenber when he was manipulating the market now he facing a crisis let see how he handle it poorly
Remco Ba
Remco Ba Mar 09, 2020 1:34AM ET
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Hurray for Saudi! This is the only thing that could potentially save the world from a global crisis
 
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