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Oil Prices Hit a Historic Low Since 1991 After KSA Hit Backs in Price War

Oil prices hit a historic low overnight after Saudi Arabia hit back her onetime ally Russia in a bid to maintain its oil exports crucial to Kingdom’s economy. United States oil prices crash to as much as 34% suffering a four-year low of $27.34 per barrel as traders expect Saudi Arabic to flood the market with crude to regain the market share.

Crude was recently floating down 27% to USD 30.04 per barrel. Brent Crude, the global benchmark, depreciated 26% to USD 33.49 per barrel. Both oil-production giants are heading towards their worst day since 1991 according to Refinitiv.

The shock to oil also upended stock markets, which were already in a shock because of the novel coronavirus outbreak. Market in Asia witnessed crashes during Monday trading while United State futures registered big losses. In Europe, the FTSE 100 (UKX) fell to 8.5% with BP (BP) plunging to 20% while Germany DAX (DAX) was 7.4% down and Italy’s main index recorded a decline of 7%.

The latest shocks in market are a result of the collision course between market allies Russia and OPEC, the two were expected to be at collision course at some point of time. Russia was limiting its supply since the start of 2017 in a bid to support prices.

However, in a meeting in Vienna on Friday, Russians were in no mood to rescue the virus-battered oil market by further truncating production, a proposal put by OPEC. The latest episode of standoff prompted a 10% plunge in oil Prices on Friday. Crude was already stuck in a bear market because of the sharp reduction in demand in the aftermath of Covid-19.

Saudi Arabia fueled the crisis further over the weekend as Kingdom to the surprise of many dropped its April official selling prices by $6 to $8 according to analysts in an attempt to recapture its market share and increase Pressure on Russia.

“The signal is Saudi Arabia is looking to open the spigots and fight for market share,” said Matt Smith, director of commodity research at ClipperData. “Saudi is rolling up its sleeves for price war.”

According to analysts Russia’s refusals to slash production was directly linked with US shale oil production which always need higher oil prices for sustainability.

“Russia has been dropping hints that the real target is the US shale oil producers, because it is fed up with cutting output and just leaving them with space,” analysts at energy consulting firm FGE wrote in a note to clients Sunday. “Such an attack may be doomed to failure unless prices remain low for a long time.”

The 2014-16 oil crash was responsible for the bankruptcy of dozens of oil and gas companies and hundreds of thousands of layoffs. However, the United States shale industry recovered to eventually become the world’s leading producer of the commodity.

“The perils of playing a game of brinksmanship with Vladimir Putin were proven in dramatic fashion,” Helima Croft, head of global commodity strategy at RBC Capital Markets, wrote in a Friday note to clients. “It is hard to see how the relationship can easily be put back on a solid footing.”