Oil prices crashed to their lowest levels since 2016 after Saudi Arabian state oil giant Aramco said it plans to cut prices, a move that escalates the kingdom’s clash with Russia and threatens to unleash a torrent of crude into well-supplied energy markets.

The Saudi gambit is part of an aggressive campaign to snatch some of Moscow’s market share, according to delegates from the Organization of the Petroleum Exporting Countries and Saudi officials. It comes after a longstanding partnership between some of the world’s largest oil producers, including Saudi Arabia and Russia, splintered on Friday. The sides failed to reach an agreement on production cuts to support the price of oil in the face of the coronavirus-related economic slowdown.

Oil fell sharply to fresh multiyear lows when futures trading opened Sunday evening in New York, with US
Oil fell sharply to fresh multiyear lows when futures trading opened Sunday evening in New York, with US

Oil fell sharply to fresh multiyear lows when futures trading opened Sunday evening in New York, with U.S. crude futures sliding 20% to a roughly four-year low of $33.19 a barrel. Brent crude, the global gauge of prices, fell 20% to $36.12 a barrel on the heels of its worst day since the financial crisis more than a decade ago. Analysts cautioned that the moves late Sunday were likely to shift due to thin trading volumes and notoriously volatile crude prices. If they held, they would mark some of the biggest one-day swings ever.

The declines came after Aramco said in a notice to buyers sent Saturday that it was cutting most of its prices. It slashed its popular medium crude by $7 a barrel to the U.S., by $8 a barrel to Northern Europe and by $6 to the Far East for oil deliveries next month.

The price cuts are aimed directly at Russia’s market share, Saudi officials said, but don’t encompass the entirety of the kingdom’s strategy, as it is set to boost its crude output as well to 10 million barrels a day, up from about 9.7 million barrels a day in January. The officials said Saudi Arabia would up output next month to above 10 million barrels a day and could increase to its maximum capacity of 12 million barrels a day if needed.

The officials said Saudi Arabia would up output next month to above 10 million barrels a day
The officials said Saudi Arabia would up output next month to above 10 million barrels a day

Fears of an impending oil-price war sent shares of the Saudi Arabian Oil Co., as the company is formally known, sliding as much as 9% in Sunday trading in Riyadh, dropping below 30 riyals. That takes the stock below the 32 riyals per share level that the company was listed at less than three months ago.

Saudi Arabia flooded the market in 2014 and weakened prices, hoping to undermine U.S. producers. A production hike now would be different because it would come at a time when there is little foreseeable demand for extra Saudi oil.

Saudi Arabia had signaled last week that it was reducing exports by 500,000 barrels a day because of a lack of demand for its oil in China. The Asian powerhouse has reduced its consumption as refineries were forced to shut down and travel became restricted to halt contamination from the deadly coronavirus. Analysts expect the spread of the virus in the rest of Asia as well as Western Europe and the U.S. to further impede appetite for crude.

“What makes this price war especially dangerous and historic is it breaks out simultaneously with a massive demand shock…from the coronavirus" said Robert McNally, president of Rapidan Energy Group, a Washington, D.C.-based energy-market consulting firm.

“We have not seen that toxic combination since the early 1930s when [Texas’] monster Black Giant field started up in the teeth of the Depression, sending crude oil prices down to pennies on the barrel."

The fall in Aramco’s shares marks a major blow for the kingdom, which sold a 1.5% stake in the company in December in the world’s largest initial public offering. It was billed as a test of Crown Prince Mohammed bin Salman’s global standing and a fresh source of funding for his economic reforms.

The shares have run into a plunge in oil prices and more recently, political upheaval inside the kingdom. Over the weekend, Prince Mohammed launched a broad security crackdown by rounding up royal rivals, government officials and military officers, The Wall Street Journal reported Saturday.

The crown prince had aggressively lobbied Russian President Vladimir Putin to join OPEC in a round of production cuts in recent weeks, fearing the impact of the coronavirus on oil demand—and on his plans to reform the economy following Aramco’s IPO.

Friction between Saudi Arabia and Russia began in early February, when Prince Mohammed asked his father, King Salman, to phone Mr. Putin and to request Russia’s cooperation on new output curbs. When the king called, Mr. Putin initially wouldn’t make himself available to speak to him. When he did talk to the king, Mr. Putin refused to commit, according to Saudi officials.

Source FactSet
Source FactSet


Mr. Putin didn’t seem as concerned about the coronavirus’ longer term effects on the oil market, those officials said. Russia’s economy is somewhat more diversified than Saudi Arabia’s. Also, Russian oil companies have been pressing the Kremlin to boost crude output.

The world’s largest oil producers had met in Vienna, where analysts hoped they would reach an agreement to reduce global supply as worries about the coronavirus weigh on global growth. By the time the gathering began, the Saudis’ entreaties had alienated both Mr. Putin and his energy minister Alexander Novak, according to people familiar with the matter.

Mr. Novak has worked closely with his Saudi counterparts in the past but wasn’t consulted by them before they reached out to Mr. Putin, the people said.

A spokesman for Mr. Novak didn’t respond to requests for comment.

Saudi Arabia’s Tadawul stock exchange was closed Friday. But shares in other oil giants tumbled alongside crude prices with Exxon Mobil Corp. and Royal Dutch Shell PLC both down over 4%.

“Airlines are cutting back on flights, travel is going right down, traffic is going down, factories are closing, so demand for energy is falling and is going to fall further," said Peter Kisler, portfolio manager at London-based North Asset Management.

—Avantika Chilkoti, Rory Jones and Amrith Ramkumar contributed to this article

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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