Oil futures plunged to a four-year low Monday, on track for the biggest one-day drop since 1991 as OPEC and Russia appear headed for an all-out price war — shaking a market already reeling from the demand shock created by global spread of COVID-19.
West Texas Intermediate crude for April delivery CLJ20, -22.19% on the New York Mercantile Exchange dropped $9.11, or 22%, to $32.16 a barrel, after briefly trading below $29. May Brent crude BRNK20, -21.71%, the global benchmark, was down $9.94, or 21.9%, at $35.25 a barrel. The declines for both grades would be the largest since Jan. 17, 1991, according to FactSet, the day the U.S. and Gulf War allies bombed Iraq, kicking off Operation Desert Storm.
A push by the Organization of the Petroleum Exporting Countries for members of the organization and its Russia-led allies to add to increase existing cuts by 1.5 million barrels a day was rejected by Moscow in talks that collapsed Friday without an agreement. That means existing curbs will expire at the end of March, leaving OPEC members and their erstwhile allies free to pump freely.
Read:Investors brace for a race to the bottom as all-out price war erupts between Saudi Arabia and Russia
“Given the breakdown in talks and the scale of the surplus over 2Q20, we have slashed our oil price forecasts significantly over the weekend and now forecast ICE Brent to average $33 a barrel over the second quarter,” said Warren Patterson, head of commodities strategy at ING, in a note. “We would expect the market to test the lows seen in early 2016. Meanwhile uncertainty over the demand picture, as [COVID-19] spreads, only adds further downside risk.”
Saudi Arabia over the weekend cut its export prices for crude, in a move that was seen as aimed at undercutting Russia as oil powers engage in a battle for market share.
“In doing so, Saudi Arabia has launched a new price war for market shares, with Russia no doubt being the main target,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note.
Fritsch said oil will likely begin of a prolonged phase of bottoming out, with the potential for volatility in both directions. Non-OPEC oil supply, however, is likely to fall in the second half as higher-cost producers, particularly shale drillers, feel the pinch, while demand for crude is likely to pick up as the spread of the viral outbreak slows later in the year, he said.
April natural gas NGJ20, -4.91% was off 4.9% at $1.625 per million British thermal units.