Oil prices plunged by a third after Saudi Arabia launched a production war

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LONDON (Reuters) – Oil prices lost up to a third of their value on Monday, in their biggest daily loss since the 1991 Gulf War, after Saudi Arabia indicated it would raise production to increase market share, while the outbreak of the Corona virus was already causing excess supply in the market.

An oil rig in Texas, in the image from Reuters archives.

Saudi Arabia has cut official selling prices and made plans to increase production next month after Russia’s reluctance to make yet another major cut proposed by the Organization of the Petroleum Exporting Countries to stabilize oil markets.

By 1000 GMT, Brent crude futures fell 22 percent at $ 37.05 a barrel, after earlier falling 31 percent to $ 31.02 a barrel, the lowest level since February 12, 2016.

US West Texas Intermediate crude fell more than 24 percent to $ 33.20 a barrel, after initially plunging 33 percent to $ 27.34, which is also the lowest level since February 12, 2016.

The biggest decline ever recorded by US benchmark was in 1991 when it fell by a third as well.

The disintegration of the group known as OPEC +, which includes OPEC as well as independent producers including Russia, ends cooperation that has lasted for more than three years to support the market.

Two sources told Reuters on Sunday that Saudi Arabia plans to increase production to more than ten million barrels per day in April after the end of the current agreement to curb production at the end of March.

The kingdom has been producing around 9.7 million barrels per day in the past few months.

At the weekend, Saudi Arabia cut April’s official selling prices for all grades of crude to all destinations between six and eight dollars a barrel.

The International Energy Agency said on Monday that global oil demand is heading for deflation in 2020 for the first time since 2009. The agency reduced its annual forecast by about one million barrels per day, indicating a contraction of 90 thousand barrels per day.

Major banks have cut back their growth forecasts. Morgan Stanley predicted that demand growth in China would record zero in 2020, and Goldman Sachs predicted a contraction of 150,000 bpd in global demand.

Goldman Sachs also cut its forecast for Brent crude to $ 30 in the second and third quarters of 2020.

In other markets, the dollar fell sharply against the yen, Asian stock markets tumbled a lot, and the price of gold rose to the highest level since 2013 as investors resorted to safe havens.

Prepared by Yasmine Hussein for the Arabic Bulletin – Edited by Moataz Mohamed

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