Crude oil gapped lower this past week, with Monday’s session seeing its largest one-day fall since 1991. Pricing has fallen consistently, down by about half from the start of the year, and briefly touched $30 per barrel, a level not seen since early 2016.
The reasons behind this four-year low are twofold: COVID-19 leading to lower fuel demand and lower industrial output at least through Q1 2020 and Russia’s refusal to curtail oil output in concert with OPEC, effectively ending a three-year cooperation under the OPEC+ scheme.
In direct response, oil prices plummeted 20 percent on Mar. 9, and now battle lines are drawn between Russia and Saudi Arabia. Saudi Arabia responded to Russia’s refusal by announcing discounts to official selling prices and raising production to push prices lower.
While this may seem counterintuitive to the OPEC’s end goal, these announcements were meant more as a threat to the Russian economy to coerce them back to the negotiating table. According to some estimates, crude and oil gas exports represent over half of Russia’s annual budget revenue.