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Explainer | Why did Saudi Arabia start an oil price war?
- Global oil demand was already in the doldrums amid widespread restrictions on trade and travel in the wake of the novel coronavirus outbreak
- But Russia balked at oil production cuts, the Saudis slashed prices in retaliation and global markets went into a tailspin on Monday
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Global benchmark oil prices took their biggest single day plunge in 30 years on Monday after Saudi Arabia said it would increase oil production even as global demand has slumped in the wake of the coronavirus outbreak.
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In response, Asian stock markets closed significantly down on Monday with the carnage spreading to the US, where the Dow Jones Industrial Average closed down 2,013 points, or 7.8 per cent, in its single-day biggest point drop ever. The situation stabilised somewhat on Tuesday in Asia with benchmark indexes in Sydney, Hong Kong and Shanghai rising.
The outbreak had already hit oil prices as the circulation of people and goods around the world has slowed dramatically amid curbs imposed in an effort to slow the spread of the virus.
“With demand already falling like crazy, the timing of this is horrible,” said Jim Krane, fellow at Rice University’s Baker Institute of Public Policy in Houston. “It’s a lot of oil with no place to go.”
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What happened?
Saudi Arabia, the world’s second largest oil producer, started a price war over the weekend when it slashed crude prices by the largest margin in two decades and said it would ramp up production.
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