Oil prices plummet by 26% as OPEC deal collapses

Oil is on course for its worst day of trading in 29 years on Monday after Saudi Arabia slashed its official selling prices and made plans to ramp up crude output, in response to Russia’s refusal to back an OPEC-led supply cut extension last week.

The collapse of a longstanding agreement between OPEC and its oil producing allies (known as OPEC+) sent the global oil market into disarray, with Brent crude prices down 26% to US$33.46 per barrel – its lowest point since February 2016.

Meanwhile, West Texas Intermediate crude shrank by 28% to $29.80 a barrel and is potentially heading for its biggest decline on record, surpassing a 33% fall in January 1991 triggered by the start of the first Gulf War.

Saudi Arabia’s plans to boost its crude output above 10 million barrels per day (bpd) in April resemble a sharp U-turn from its pledge last week to contribute to an additional 1.5 million bpd supply cut with OPEC.

However, after Russia refused to commit to the supply cuts the prospect of an oil pricing war between the world’s two largest producers will exacerbate the ongoing effect of the coronavirus outbreak on the oil market. Prices had already dropped by 20% this year prior to the collapse of the OPEC deal.

“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.