Top oil exporter Saudi Arabia slashed its oil prices at the weekend after it failed to convince Russia on Friday to back sharp production cuts.
The two sides failed to agree on measures to cut production by as much as 1.5 million barrels a day.
That initially saw Brent drop below $50 a barrel on Friday with the downward trend carrying over to Asia on Monday. The region is home to some major importers including China, Japan, South Korea and India.
On Monday, oil fell the most since 1991, after Saudi Arabia started a price war with Russia by slashing its selling prices and pledging to unleash its pent-up supply onto a market reeling from falling demand because of the coronavirus outbreak.
Brent crude futures fell by as much as $14.25, or 31.5%, to $31.02 a barrel. That was the biggest percentage drop since Jan. 17, 1991, at the start of the first Gulf War and the lowest since Feb. 12, 2016. It was trading at $35.75 at 0114 GMT.
U.S. West Texas Intermediate (WTI) crude fell by as much as $11.28, or 27.4%, to $30 a barrel. That was also the biggest percentage drop since the first Gulf War in January 1991 and the lowest since Feb. 22, 2016. It was trading at $32.61.
Saudi Arabia, the world’s biggest oil exporter, is attempting to punish Russia, the world’s second-largest producer, for balking on Friday at production cuts proposed by the Organization of the Petroleum Exporting Countries (OPEC).
OPEC and other producers supported the cuts to stabilize falling prices caused by the economic fallout from the coronavirus outbreak.
Saudi Arabia plans to boost crude output above 10 million barrels per day (bpd) in April after the current supply deal between OPEC and Russia, – known as OPEC+ – expires at the end of March, two sources told Reuters on Sunday.
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, now the world’s biggest oil producer as flows from shale oil fields doubled the country’s output during the last decade.
“Saudi Arabia and Russia are entering into an oil price war that is likely to be limited and tactical,” Eurasia Group said in a note.
“The most likely outcome of this crisis is entrenchment into a painful process that lasts several weeks or months, until prices are low enough to … some form of compromise on resumed OPEC+ production restraint,” Eurasia said.
Saudi Arabia has opened the war by cutting its official selling prices for April for all crude grades to all destinations by between $6 to $8 a barrel.
With global oil production now far outpacing demand, oil analyst Martjin Rats of Morgan Stanley said Opec members are now expected to pump more oil to capture market share.
“Given Opec countries now have very little incentive to restrain production, oil markets look sharply oversupplied,” Mr Rats said in a research note.
Energy markets analyst Vandana Hari, of research firm Vanda Insights, said the markets were shocked by the disagreement on production cuts between Opec and Russia, which was surpassed last year by the US as the world’s top producer.
“The collapse of the Opec/non-Opec alliance is a major shock to the oil market, and it comes with the added challenge that we don’t have the full picture of what lies ahead,” Ms Hari told the BBC.
China’s efforts to curtail the coronavirus outbreak has disrupted the world’s second-largest economy and curtailed shipments to the largest oil importer.
The spread to other major economies such as Italy and South Korea and the burgeoning cases in the United States has increased the concerns that oil demand will slump this year.
Major banks such as Morgan Stanley and Goldman Sachs have cut their demand growth forecasts, with Morgan Stanley predicting China will have zero demand growth in 2020 while Goldman is seeing a contraction of global demand of 150,000 barrels per day.
In other markets, the dollar was down sharply against the yen, Asian stock markets were set for big falls and gold rose to the highest since 2013 as investors fled to safe havens.