CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure. CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure.

Oil price plunges over 30% as Saudi Arabia unveils aggressive price cuts

US crude and Brent crude crashed as much as 27% and 31% respectively in early trading on Monday 09 March.

Oil prices plummeted over 30% on Sunday – the largest one-day drop since 1991 – after the alliance between OPEC+ and Russia came undone last Friday 06 March over supply disagreements.

On Monday 09 March, US Crude oil prices fell as much as 27% within minutes of the market opening to a four-year low of US$30 a barrel.

Brent Crude also dropped 31% in early trading from US$45 a barrel to US$31.02 a barrel.

Saudi Arabia to raise oil output and slash prices

Traders are selling off, in anticipation of higher oil output and lower prices, triggered by Saudi Arabia’s shock decision to raise oil production by two million barrels a day, and slash prices by between US$6 to US$8 per barrel.

Saudi oil production could reportedly reach upward of 10 million barrels per day starting from April, to as much as 12 million barrels.

Saudi Arabia – the de facto leader of the Organization of Petroleum Exporting Countries (OPEC) – revealed its plans on Sunday 08 March, as a response to Russia’s refusal to reduce its output in Friday’s Vienna meeting amid the worsening coronavirus outbreak, which has hit oil demand hard in recent weeks.

Russian President Vladimir Putin had earlier indicated that the country's current oil prices are ‘acceptable’, and that it had the tools to respond to any adverse market impact from the coronavirus’ spread.

Following Friday’s meeting, oil prices had plunged as much as 10%. Oil prices had already been bearish in the last one month due to lower demand caused by the coronavirus. US crude price has fallen roughly 44% since February, while Brent is down some 43.1%.

Go long or short on US Crude and Brent Crude prices by trading CFDs with IG.

Analysts: oil price collapse has only ‘just begun’

Analysts view the move by Saudi Arabia as a ‘market share grab’ and the start of a ‘price war’.

‘The signal is Saudi Arabia is looking to open the spigots and fight for market share,’ said Matt Smith, director of commodity research at ClipperData, told CNN. ‘Saudi is rolling up its sleeves for a price war.’

Bob McNally at Rapidan Energy Group said that it is ‘very rare’ for a collapse in demand to ‘coincide with a supply surge’, telling The Financial Times that it is the most price-bearish crude combination since the early 1930s. He believes the price collapse has only ‘just begun’.

According to RBC Capital Markets’ Biraj Borkhataria, this latest price war will have a ripple effect on the rest of the energy industry. He said the ‘massive’ drop in oil prices ‘clearly exposes all of the energy majors’, as they ‘need Brent crude at US$50-US$60 a barrel to cover their dividends’.

US shale oil producers, who have traditionally relied on higher prices to profit due to their higher costs of production, will also be hurt by the tensions between Russia and Saudi Arabia.

‘Russia has been dropping hints that the real target is the US shale oil producers, because it is fed up with cutting output and just leaving them with space,’ FGE consultants wrote in a note to clients on Sunday.

‘Such an attack may be doomed to failure unless prices remain low for a long time,’ they added.

Brent crude could fall to as low as US$20 a barrel

Following Saudi Arabia’s latest announcement, Goldman Sachs’ commodity research team lowered its price forecast for Brent crude to US$30 a barrel for the second and third quarters on 2020, further cautioning that there could be more declines to as low as US$20 a barrel in the coming weeks.

Some market watchers opined that this latest oil war is one that would be difficult to recover from.

‘It is hard to see how the relationship can easily be put back on a solid footing,’ said RBC Capital Markets analysts, while FGE consultants referred to it as a ‘collective suicide with a lose-lose conclusion’.

Trade US Crude Oil, Brent Crude Oil and other commodities via IG's industry-leading trading platform.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

React to volatility on commodity markets

Trade commodity futures, as well as 27 commodity markets with no fixed expiries.

  • Wide range of popular and niche metals, energies and softs
  • Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
  • View continuous charting, backdated for up to five years

See opportunity on a commodity?

Try a risk-free trade in your demo account, and see whether you’re on to something.

  • Log in to your demo
  • Try a risk-free trade
  • See whether your hunch pays off

See opportunity on a commodity?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Analyse and deal seamlessly on fast, intuitive charts
  • Get spreads from just 0.3 points on Spot Gold
  • See and react to breaking news in-platform

See opportunity on a commodity?

Don’t miss your chance. Log in to take your position.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Friday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.