{"id":99738,"date":"2020-03-09T16:22:22","date_gmt":"2020-03-09T23:22:22","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=99738"},"modified":"2020-03-09T16:22:22","modified_gmt":"2020-03-09T23:22:22","slug":"oil-prices-plunge-after-opec-deal-failure-sparks-price-war","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2020\/03\/09\/oil-prices-plunge-after-opec-deal-failure-sparks-price-war\/","title":{"rendered":"Oil prices plunge after OPEC deal failure sparks price war"},"content":{"rendered":"

Courtesy Adaderana<\/em><\/span><\/h2>\n\n\n

Oil prices and stock indexes were in freefall Sunday after Saudi Arabia announced a stunning discount in oil prices \u2014 of $6 to $8 per barrel \u2014 to its customers in Asia, the United States and Europe.<\/p>\n\n\n\n

Benchmark Brent crude oil futures dove 30% \u2014 the steepest drop since the Gulf War in 1991 \u2014 in early trading Sunday night before recovering slightly to a drop of 24%. The benchmark Brent crude oil price fell below $34 per barrel.<\/p>\n\n\n\n

The oil price shocks reverberated throughout financial markets. Dow futures dropped more than 1,000 points, S&P 500 futures hit their limits after tumbling 5%, and the key 10-year Treasury note yield fell below 0.5%, a record low.<\/p>\n\n\n\n

Saudi Arabia, the world\u2019s second-largest producer, this weekend said it will actually boost oil production instead of cutting it to stem falling prices, in a dramatic reversal in policy.<\/p>\n\n\n\n

Late last week, Saudi Arabia, the rest of OPEC and Russia failed to agree on production cuts to combat falling prices because of fears that the coronavirus epidemic will halt world economic growth. Oil prices were down more than 30% this year before Sunday\u2019s collapse.<\/p>\n\n\n\n

U.S. consumers are likely to see lower prices at the gas pump, but American oil producers \u2014 who lead the world in output \u2014 could be hurt by the oil price slide.<\/p>\n\n\n\n

Economies from China to Italy have ground to a halt as quarantines shut down factories and demand for products and services craters.<\/p>\n\n\n\n

Saudi Arabia and other OPEC members sought to cut production to shore up oil prices. But the once-powerful cartel can no longer move markets alone. It needs the support of Russia, which is not an OPEC member but has recently been coordinating with the organization.<\/p>\n\n\n\n

Yet Russia has resisted calls for production cuts. On Friday, the talks ended in failure. OPEC and its allies announced no new reductions and didn\u2019t even commit to extending current cuts.<\/p>\n\n\n\n

So, Saudi Arabia is doing an about-face. If it can\u2019t get the price back up, it\u2019s going to drive the price way down. It\u2019s offering to cut the oil price for the U.S. market by $7 per barrel, to Europe by $8 and Asia by $6. Paired with Saudi Arabia\u2019s ability to rapidly increase production \u2014 flooding the market with cheap crude \u2014 those unilateral price cuts will push the price of oil down for everyone.<\/p>\n\n\n\n

Low oil prices are bad for Saudi Arabia\u2019s budget, and the price of the Saudi oil company Aramco\u2019s stock tumbled below its initial public offering price on Sunday. But, because Saudi Arabia\u2019s production costs are the lowest in the world, lower prices can hit other producers harder.<\/p>\n\n\n\n

Russia seems to be the target of this price war. But as Saudi Arabia tries to grab market share with bargain-basement prices, American oil and gas producers, including the fracking industry, will also feel pain.<\/p>\n\n\n\n

And even with ample supply and low production costs, Saudi Arabia is not guaranteed to come out on top in a prolonged face-off with Russia \u2014 especially if fears of a pandemic keep planes grounded and cars in driveways no matter how cheap crude oil gets.<\/p>\n\n\n\n

They\u2019re cutting prices, they\u2019re going to increase production. But it\u2019s not clear they\u2019re going to have buyers for that oil,\u201d says Ellen Wald, an energy markets analyst and the author of Saudi, Inc. It\u2019s entirely possible that they may not have the wherewithal and the will and the toughness to withstand a price war and a production war with Russia.\u201d<\/p>\n\n\n\n

Still, lower fuel prices will offer some relief to the airline industry, which is feeling the strains of the coronavirus crisis, with travel cancellations leading to flight cuts.<\/p>\n\n\n\n

-Agencies<\/p>\n","protected":false},"excerpt":{"rendered":"

Courtesy Adaderana Oil prices and stock indexes were in freefall Sunday after Saudi Arabia announced a stunning discount in oil prices \u2014 of $6 to $8 per barrel \u2014 to its customers in Asia, the United States and Europe. Benchmark Brent crude oil futures dove 30% \u2014 the steepest drop since the Gulf War in […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-99738","post","type-post","status-publish","format-standard","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/99738","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=99738"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/99738\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=99738"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=99738"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=99738"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}