Black Monday for Crude as OPEC Failure Leads to Oil Price Collapse

Oil prices fell the most since the 1991 Gulf War after Saudi Arabia vowed to ramp-up production, and OPEC members prepared to pump additional crude, following the collapse of last week's production cut pact with Russia.

Global oil prices plunged the most in nearly two decades Monday, pulling U.S. crude to the lowest levels since 2014, as a collapse in OPEC's pact on production cuts and plans from Saudi Arabia to boost output sent world markets into a tailspin.

OPEC leaders, as well as non-member allies such as Russia, not only failed to agree a pact that would deepen production cuts and raise global prices, but were also unable to maintain their current output reductions. With members now free to pump as much oil as they like from April 1, and the International Energy Agency forecasting its first drop in global demand since 2009 amid the coronavirus pandemic, the bottom fell out of crude markets in early Monday trading.

 “The coronavirus crisis is affecting a wide range of energy markets – including coal, gas and renewables – but its impact on oil markets is particularly severe because it is stopping people and goods from moving around, dealing a heavy blow to demand for transport fuels,” said IEA executive director Fatih Birol. “This is especially true in China, the largest energy consumer in the world, which accounted for more than 80% of global oil demand growth last year." 

"While the repercussions of the virus are spreading to other parts of the world, what happens in China will have major implications for global energy and oil markets,” he added.

Brent crude futures contracts for May delivery, the global benchmark for pricing, were marked an astonishing 20% lower, or $9 per barrel, and changing hands at $36.28 each. The slide represents the biggest one-day fall in oil prices since the start of the first Gulf War in 1991.

U.S. crude futures for April delivery, which are more tightly connected to domestic gas prices, plunged 19.5%, or $7.95 per barrel, to trade at a 2014 low of $33.33.

Exxon Mobil Corp  (XOM) - Get Report shares were marked 8.7% lower in early Monday trading at $43.54 each, while domestic rival Chevron Corp  (CVX) - Get Report was seen 11.2% lower at $84.62 each.

Britain's BP Plc  (BP) - Get Report saw its U.S.-listed shared plunge 18.5% to $25.43 each while Royal Dutch Shell  (RDS.A) - Get Report fell 14% to $36.02 each.

The oil market meltdown was also accelerated by reports that Saudi Arabia is now slashing selling prices and vowing to ramp-up production as early as next month in order to win market share in what many analysts see as a tactic designed to punish Russia for its failure to support OPEC's Friday proposal.

"The end of the deal risks bringing 2.1 million barrels per day of supply back to the market, and it is also not unrealistic to think that Libyan output may return to normal in the coming months, bringing a further 1 million," said ING's head of commodity strategy Warren Patterson.

"This 3.1 million barrels per days of additional supply would come at a time when the market was already set to be in surplus over 2Q20, while the demand picture remains uncertain, but clearly fragile due to Covid-19."