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

CommoditiesMar 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 (30)
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🤔
akljsdf askldf
akljsdf askldf Mar 09, 2020 1:53AM ET
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I did, WTI @ 29
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
Rod Deh
Rod Deh Mar 09, 2020 1:04AM ET
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this will be significant if it stays this low .good bye lots of jobs in the U.S and possibly start of a recession
Zambi rambi
Zambi2019 Mar 08, 2020 10:58PM ET
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Hal down 5 bp 7 slb 5. Exxon 5 cbx 10
Mi Tess
Fib123 Mar 08, 2020 10:44PM ET
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Bye bye shale oil, nice to know ya
David David
David9 Mar 08, 2020 10:25PM ET
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The WHO has said China did a great job. Now they will start to name countries that did not take it serious as China. China has a working model for the 21st century containment. This needs to be the new standard that all countries need to follow to contain new virus in the future.
Mike ND
Mike ND Mar 08, 2020 10:25PM ET
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Do 2 Wong’s make a right?
Chris Sundo
Chris Sundo Mar 08, 2020 10:25PM ET
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The WHO is fully in the pocket of China after the USA receded away from the WHO and left a vacuum, so China moved in and has been bribing their way around there and contributing 1 Billion $/yr to the WHO. Now that this weakling from this little African country is WHO prez and China has lent BIG money to that African country, the WHO's prez doesn't feel like he can tell the truth and uphold morals, and that he must kiss a'ss to China, what a little p_ri'ck this WHO prez. A Prez should never be chosen from the same company but instead, they should choose an accountant coz acctts' don't care over money donations. It's such a pity the world and the WHO has to make so many bad decisions and that's why (because China abuses the liberties against humanity and against COMMON SENSE AND MORALS) That's why we must NEVER ALLOW 5G into the hands of Huawei, Get it? -- And David Wong, stay out of this! We don't have patience for biased, brainwashed opinion robots and China hand kissers for short term
Chris Sundo
Chris Sundo Mar 08, 2020 10:10PM ET
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THANK YOU CHINA, but NO thank you, FOR CAUSING A MESS that drives down my gasolene bill! Although I bet Xi has to pay billions in reparations to grieving people all over the world for his greed for vanity by overruling his China CDC on January 5th 2020 and favoring looking forward to his planned invitations of 40,000 families to a Wuhan festival, thus denying the basics of medicare, segregation, treatment and urgent care for many Chinese. Hope he gets put in jail for a hundred years and does a 100 pushups and prostrations every day as punishment.
Show previous replies (1)
David David
David9 Mar 08, 2020 10:10PM ET
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I saw on YouTube, many people rather stayed in China during these times. They feel much safer there because China take it seriously to protect their citizens.
John Wolfe
John Wolfe Mar 08, 2020 10:10PM ET
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David David  China takes it seriously to protect their citizens???   Communists aren't noted for that!
Andrew Hook
Andrew Hook Mar 08, 2020 10:10PM ET
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lol when US create the subprime crisis No one complaint we are still stuck on it with central bank paper money artificial low rate. thank you China for the mess now you doing part of the great world
Buzzy Jefferson
Buzzy Jefferson Mar 08, 2020 10:10PM ET
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Agreed. This is 1000% on China. Lying, thieving, disgusting excuses. They cause all these nasty viruses because they can't properly wipe their own a$$es. Who the ***ever thought it was a good idea to give China a seat at the civilized table should be shot.
Mayajay Janday
Mayajay Janday Mar 08, 2020 10:10PM ET
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Buzzy Jefferson   Actually it is their disgusting habit of eating wild creatures and keeping them locked in tiny cages til they are blugeoned to death. Now they are reaping the rewards of that dreadful practice. maybe they will think twice about resuming the habit.
F X
F X Mar 08, 2020 10:07PM ET
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US $24 to $55 and Can $ 30 to $35. If prices stay below there could be lots of bankruptcy.
F X
F X Mar 08, 2020 10:07PM ET
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I mean break even prices US $24 to $55 and Can $ 30 to $35. If prices stay below there could be lots of bankruptcy.
Steve Marino
Steve Marino Mar 08, 2020 9:58PM ET
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$10
Gary Friauf
Gary Friauf Mar 08, 2020 9:47PM ET
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Any predictions on where oil bottoms? Try to find a good long entry point.
Chris Sundo
Chris Sundo Mar 08, 2020 9:47PM ET
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20 to 30 I heard
Dave DoggyDogg
Dave DoggyDogg Mar 08, 2020 9:27PM ET
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Trump wanted low prices (to politically pressure Saudi and Russia) and now, he's going to get low prices. Seems like Russia and Saudi are going to play a game of chicken and see how long Americas big boys Chevron etc can maintain with low prices knowing they pay top dollar to their workers in the USA. This is not good news for the big oil companies in the USA on a long term outlook. with the election around the corner it's going to be interesting if the oil sector gets into financial trouble as only so much can be hedged before something gives way. Unless this coronavirus gets really out of hand or a recession hits, then i expect crude to go back to $40+ stable in under 9 months
Sergio Horta
Sergio Horta Mar 08, 2020 8:40PM ET
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I'm curious. Is someone with break even information for shale production? I mean, can this price jeopardize USA production?
Sergio Horta
Sergio Horta Mar 08, 2020 8:40PM ET
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Apparently Saudi Arabia has breath to support this price, let's see who else has breath to stay in game. As others has already comment, the oil war was started.
Dave DoggyDogg
Dave DoggyDogg Mar 08, 2020 8:40PM ET
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Trump wanted low prices (to politically pressure Saudi and Russia) and now, he's going to get low prices. Seems like Russia and Saudi are going to play a game of chicken and see how long Americas big boys Chevron etc can maintain with low prices knowing they pay top dollar to their workers in the USA. This is not good news for the big oil companies in the USA on a long term outlook. with the election around the corner it's going to be interesting if the oil sector gets into financial trouble as only so much can be hedged before something gives way. Unless this coronavirus gets really out of hand or a recession hits, then i expect crude to go back to $40+ stable in under 9 months
Gary Friauf
Gary Friauf Mar 08, 2020 8:40PM ET
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I heard an interview the other day stating $45 was the break even point for their company anyways. I think it was the Chevron CEO stating this if I remember correctly.
Dehong Ma
Dehong Ma Mar 08, 2020 8:35PM ET
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I am seeing US shale oilers go to die hard. They just wait for others to cut for them.
Stephen Wong
Stephen Wong Mar 08, 2020 8:24PM ET
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This is the end
Michael Galassini
RoyHobbs Mar 08, 2020 8:14PM ET
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I’m sure the Aramco investors are happy they paid up for the public offering, shares are going to tank
ERIC WELLER
ERIC WELLER Mar 08, 2020 7:31PM ET
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Crude will see a 20 something print in the near future. Stocks have farther to fall. Fact is the fear of a Coronapocaplypse is going to take months to abate not weeks. The fear is worse than the reality. Nevertheless the market has always traded more on emotions usually greed, now fear, more often than reality.
Zairi Zainuddin
Zairi Zainuddin Mar 08, 2020 7:00PM ET
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Lets make some money...thanks virus..
 
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