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March 9, 2020, 3:51 p.m. EDT

Oil falls nearly 25%, posts biggest 1-day loss since 1991 on fears of global price war

Saudi-Russia price war combines with coronavirus demand shock to sink oil prices

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By William Watts, MarketWatch

Getty Images
Shale producers set for another test as price war begins.

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.

/zigman2/quotes/209723049/delayed CL00 72.53, +0.79, +1.10%

West Texas Intermediate crude for April delivery /zigman2/quotes/211629951/delayed CL.1 +1.10%  on the New York Mercantile Exchange fell $10.15, or 24.6%, to end at $31.13, after briefly trading below $29 in early trade. May Brent crude , the global benchmark, dropped $10.91, or 24.1%, to settle at $34.36 a barrel on ICE Europe. The percentage declines for both grades were the largest since January 1991, during the Gulf War.

A push by the Organization of the Petroleum Exporting Countries for members of the organization and its Russia-led allies to deepen 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.” The infectious disease, COVID-19, that was first identified in Wuhan, China in December has spread to more than 111,000 people and claimed nearly 3,900 lives.

The sharp drop in oil prices combined with uncertainty over COVID-19 combined to trigger a sharp selloff in global equities, with the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +2.12%  down more than 1,800 points or 7.1%, near 24,012, while the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.45%  remained down 6.9%. Stock-market trading was briefly halted after an initial 7% fall for the S&P 500 triggered a circuit breaker early Monday. Trading would halt again if the index extends its daily decline to 13%.

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 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.

See: Goldman says coronavirus and oil price war could see crude plunge into the $20s

Meanwhile, the International Energy Agency on Monday slashed its global oil demand view, now seeing a 90,000 barrel a day decline this year, from a previous forecast of an 825,000 barrels a day increase.

In other energy trading, April gasoline futures  dropped 18.2 % to finish at $1.1369 a gallon, while April heating oil  declined 16.1% to $1.1629 a gallon.

April natural gas  bucked the trend, jumping 4.1% to $1.778 per million British thermal units.

US : U.S.: Nymex
$ 72.53
+0.79 +1.10%
Volume: 61,237
June 4, 2023 10:45p
US : Dow Jones Global
+701.19 +2.12%
Volume: 0.00
June 2, 2023 5:21p
+61.35 +1.45%
Volume: 0.00
June 2, 2023 5:21p

William Watts is MarketWatch's deputy markets editor, based in New York. Follow him on Twitter @wlwatts.

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