Oil prices have suffered their biggest drop since 1991 as the novel coronavirus weakened demand for energy worldwide. China, for example, used to be the top importer of crude oil, but with idle factories and cancelation of flights, its demand has gone way down. From a global lens, the demand in the first three months of 2020 is expected to drop 435,000 barrels per day compared to the same period last year, according to an International Energy Agency (IEA) report.
On Monday, prices of Brent crude futures, a global oil benchmark, were down 22 percent, trading at $35.45 per barrel. The U.S. West Texas Intermediate (WTI) crude also posted its worst day since 1991 on March 9, trading at $33.15 per barrel.
Oil prices climbed about 10 percent on Tuesday morning, following reports that Saudi Aramco plans to produce 12.3 million barrels per day starting April 1.
Last week, members of the Organization of the Petroleum Exporting Countries (OPEC), a group of 15 oil-producing countries with Saudi Arabia as the leader, met in Vienna, Austria, to discuss the impact of COVID-19 on global demand.
Over the weekend, the world's top oil exporter, Saudi Arabia, launched a price war after the erosion of an alliance between OPEC and Russia, which was formed in 2016 after oil prices dropped to $30 a barrel at the time.
The agreement, referred to as OPEC+ alliance, was that the world's two oil-producing exporters (Saudi Arabia and Russia) would cut supply by 2.1 million barrels per day to combat declining prices. Saudi Arabia wanted to increase that number to 3.6 million barrels in 2020 but Russian President Vladimir Putin did not agree to that. And so the long-standing agreement fell through and a price war was ignited.
Alongside the 26-percent increase in oil barrel output (from 9.7 million to 12.3 million), Saudi Arabia's Crown Prince Mohammad bin Salman also announced a major slash in prices for crude oil.
The kingdom's Saudi Aramco - a leading producer of petroleum and gas - instantly jumped on board the price cutting venture. According to Arab News, the company sent out mass notifications to their customers, stating that they would be cutting between $4 and $8 per barrel. The largest discounts would be offered specifically to buyers in northwestern Europe and the U.S.
Oil analyst Roger Diwan of IHS Markit - a leading source of critical information - believes it is likely the world will be experiencing the "lowest oil prices of the past 20 years" over the next quarter of 2020.
With the rise in the number of outputted oil barrels, Saudi Aramco has taken on 300,000 more barrels than its maximum capacity can withstand.
In answer to the kingdom's decisions, Russia has also decided to increase its oil production by 500,000 extra barrels per day. This raises its daily output severely, pushing the country to produce its own personal record of 11.8 million barrels each day. Have both countries bit off more than they could chew?
According to the managing director of Abu Dhabi-based consultancy Manaar Group, Jaafar Altaie, there is a crucially large "amount of posturing" occurring between the two countries.
"They're both getting ready to fight a pretty aggressive price war," Altaie told ABC News.
This oil price war not only affects Saudi Arabia and Russia but according to Arab News, analysts also believe the U.S. shale oil industry is also under threat due to the high costs of production.
WTI crude and Brent crude's stock numbers rose the slightest bit on March 11, since they witnessed their worst drop on March 9. They now stand at $33.59 and $36.40 per barrel respectively, but prices keep on fluctuating.
On March 9, the OPEC Basket's - weighted average of prices for petroleum blends produced by OPEC members - stock price dropped by 28.18 percent ($13.62), placing its current stock price at $34.71 per barrel.