Oil suffers worst day in 29 years
Oil prices suffered their biggest fall since 1991 when American forces launched air strikes on Iraqi troops following their invasion of Kuwait.
Saudi Arabia launched a price war against onetime ally Russia on Monday, resulting in U.S. oil prices taking a dive, as much as 34% to a four-year low of $27.34 per barrel. Traders brace for Saudi Arabia to flood the market with crude in a bid to recapture market share.
Brent crude futures, the global oil benchmark, were down 22%, last trading at $35.45 per barrel. US oil is trading at $33.15 per barrel, a decline of nearly 20%.
The world's top exporter launched a price war over the weekend, following the implosion of the alliance between the OPEC cartel, led by Saudi Arabia and Russia.
When oil prices plunged to $30 per barrel in 2016, the kingdom and Russia joined to form the 'OPEC+ alliance.' Since then, the two leading exporters orchestrated supply cuts of 2.1 million barrels per day. Saudi Arabia wanted to increase that number to 3.6 million through 2020 to account for weaker consumption.
Russian President Vladimir Putin, worried about giving too much much ground to American oil producers, refused to move forward with the plan, and his energy minister, Alex Novak and signaled a fierce battle to come for market share when he said countries could produce as much as they please from April 1.
At a meeting between OPEC and Russia in Vienna on Friday, simmering differences about how to best manage global oil markets spilled into the open. Saudi Arabia warned Russia it would live to regret breaking the alliance, sources who attended the meeting say.
Moscow grew tired of cutting production to stabilize prices and felt that the policy of supply restraint gave more room for US shale companies to grow.
Mikhail Leontiev, a spokesperson for Russian state oil company Rosneft, described the OPEC+ deal as "masochism."
"By yielding our own markets, we remove cheap Arab and Russian oil to clear a place for expensive US shale oil and ensure the effectiveness of its production," he told Russian state media on Sunday.
America has become the number one oil producer in the world and is expected to pump about 13 million barrels a day in the first quarter of this year.
Over the weekend, Saudi Arabia decided to fight for greater market share by slashing the prices its preferred customers pay by between $4-$7 a barrel. The kingdom is also reportedly planning to lift production to over 10 million barrels a day.