Futures of international benchmark Brent crude fell below $30 a barrel for the first time since 2016, a 54 per cent drop year-to-date.
Brent crude fell 1.5 per cent to $29.57 a barrel this afternoon, having earlier touched $29.44, the lowest since January 2016. US West Texas Intermediate crude rose 0.7 per cent to $28.91.
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Saudi Arabia has slashed its oil prices to buyers and will be maxing out its production, as will Russia, as the two major producers throw themselves into an all-out price war to fight for greater market share.
A lot of shocks will likely come after April 1, when a previously-agreed production cut deal between OPEC and non-OPEC states, including Russia, meant to boost prices, expires. Saudi Arabia has announced plans to increase its daily production to 12.3 million bpd in April, compared to roughly 9.7 million bpd in February.
Russia’s energy minister said last week that Russia can increase its production by 200,000 to 300,000 bpd in the short term, and 500,000 bpd in the longer term.
Meanwhile, the International Energy Agency has warned that the collapse in oil prices threatens to cut the revenues of “vulnerable” producing countries by up to 85 per cent, as the coronavirus pandemic slashes demand and Russia and Saudi Arabia increase supplies.
The agency said that countries such as Ecuador, Iraq and Nigeria would be particularly hard hit by the price slump, and that the IMF may need to be prepared to intervene.
Other Opec members, such as Algeria and Angola, are also at risk because of their high dependence on oil and gas revenues.
Ecuador, where the government has already had to scale back spending, was likely to be one of the hardest hit, the IEA said, with oil and gas revenues expected to fall by 85 per cent.