New Delhi, March 9 : The bloodbath in the oil market has continued into the new week with crude oil prices slumping to around 30 per cent on Monday to just about $30 a barrel after Saudi Arabia shocked the market by launching a price war against one time ally Russia.
Late last week, talks between oil cartel Organization of Petroleum Exporting Countries (OEPC) and Russia collapsed as the two sides failed to agree on an output cut deal. This pushed Saudi Arabia, the world’s largest oil producer, to cut its crude prices and announce increase production leading to a mayhem in an already over supplied oil market.
Crude is trading down 22 per cent to $32 a barrel. Brent crude, the global benchmark, has also plunged 22 per cent to $35 a barrel. Both oil contracts are on track for their worst day since 1991 Gulf War.
US oil prices crashed as much as 27 per cent to a four-year low of $30 a barrel.
The fear in the market now is that oil prices may crash further as Saudi Arabia is taking aggressive stance and is expected to flood the market with crude in a bid to recapture market share. Analysts have said that Saudi Arabia had slashed its April official selling prices by $6 to $8 a barrel in a bid to retake market share and heap pressure on Russia.
The global developments on oil bore well for India that imports 83 per cent of its domestic oil requirements. Analysts said that the country could save over $30-40 billion in its oil import bill if the current prices hold on for longer during 2020. This fiscals oil imports bill is also expected to fall from the gains on prices in the last two months of the financial year.
In a tweet on Sunday Kotak Mahindra Bank managing director and CEO Uday Kotak said: “Amidst turbulence and the virus, some good news – oil at $45/barrel. Recent $20 drop saves India $30 billion per annum. Also global interest rates have collapsed making money cheap. Let’s leverage these for policy to boost growth.”
The current crude oil prices are just marginally higher than the decadal low of $26 a barrel in early 2016 with analysts fearing that it may touch that level soon.
The failure of OPEC-Russia deal on production cuts has the genesis on growing prowess of the United States in oil export market. Russia has been dropping hints that the real target is the US shale oil producers as any production cuts by them helps US producers extra space in the market. OPEC led by Saudi Arabia wants production cuts to be expanded in an oversupplied market to prevent further erosion in oil prices that is also facing huge demand squeeze aggravated by the spread of Coronavirus.
The failure of talks has also resulted in a crash of Stock markets across the Gulf. Saudi Arabia’s stock exchange, the Tadawul, was down 7.7 per cent in afternoon trading on Sunday. The Abu Dhabi index fell 5.8 per cent, Dubai’s Financial Market General Index was down 7.47 per cent.
Shares of Saudi state oil giant Aramco traded below their original IPO price for the first time on Sunday, at 30.90 riyals ($8.24) in Riyadh compared to the listing price of 32 riyals in December. That’s down 6.36 per cent on the day.