Crude Oil markets tumbled more than 30% after the disintegration of the OPEC+ alliance triggered an all-out price-war between Saudi Arabia and Russia.
Brent Crude Oil futures suffered the 2nd-largest drop on record in the opening secs of trading in Asia, behind only the dive during the Gulf War in Y 1991. As the global Crude Oil benchmark plummeted to as low as 31.02 bbl,
In December I warned the price would fall to 29 bbl this Quarter.
OPEC+ has surprised the market by engaging in a price war to gain market share, the world is awash in Crude Oil.
Saudi Arabia slashed its official prices by the most in at least 20 yrs at the weekend and signaled to buyers it would ramp up output signaling its intent to flood the market, Russia said its companies were free to pump as much Crude Oil as they could.
Aramco’s unprecedented pricing move came just hours after the talks between OPEC’s and its allies ended in dramatic failure. The breakup of the alliance effectively ends the cooperation between Saudi Arabia and Russia that has underpinned prices since Y 2016.
The Saudi producer has privately told some market participants it plans to raise output to a record 12-M BPD according to our sources late Sunday.
Oil prices have suffered massive drops each time that Saudi Arabia has launched a price war to drive competitors out of the market.
WTI fell 66% from late Y 1985 to March 1986 when the country pumped at will amid a resurgence of US output.
Brent briefly dropped below 10 bbl when the Kingdom had a showdown with Venezuela in the late 1990’s.
Now the Crude Oil market is faced with 2 very uncertain bearish shocks with the clear outcome of a sharp sell-off.
Brent for May settlement tumbled as much as 14.25 to 31.02 bbl on ICE Futures Europe Exchange, the biggest intra-day loss since the US-led bombing of Iraq in January 1991. It is now trade 22% lower at 35.39 bbl as of 8:04a in Singapore.
WTI fell 22% to 32.22 bbl after sliding as much as 27% to 30 bbl just after the open in Asia Monday. Trading was frozen for the 1st few mins because of the scale of the loss.
The price crash is dramatic
For oil specialists the movements in time-spreads, options and volatility are just as remarkable.
Brent’s 3-month price structure widened sharply as Crude Oil for prompt delivery collapsed against later shipments. It moved deeper into contango, a sign of bearishness and oversupply, making it profitable for physical traders to buy crude and put it in storage, either in onshore tank farms or at sea on tankers.
US equity futures are off, along with Oil currencies including the Norwegian Krone and Mexican Peso, while havens such as JPY and gold jumped.
The prospect of another price war is spooking traders who will remember the crash that began in Y 2014, when an explosion in US shale production prompted OPEC to open the spigots in an attempt to suppress prices and curtail shale output.
That strategy ended in failure, with shale producers proving too resilient and Brent tumbling below 30 bbl in Y 2016 on a global glut. It was that crash that prompted OPEC to come together with Russia and others to curtail output and help shore up their Crude Oil-dependent economies. Stay tuned…
Have a terrific week