Oil prices dropped Monday as Saudi Arabia and Russia haggle over whether to reduce crude production amid fears that coronavirus will hamper air travel and potentially wreck the global economy.
Prices fell into the $30s as the Saudis push for a cut in output to prop up prices, while Russia went the other way, and decided to infuse the market with hundreds of thousands of barrels of oil, according to The Washington Post. Moscow is worried that the U.S. will use shale oil to take advantage if Saudi Arabia ease off production.
Basement-low oil prices could substantially impact oil companies and the global markets, which are already being hurt by fears related to coronavirus. Brent crude dropped to $35 per barrel; and the price of West Texas Intermediate crude fell to $32 from $41 per barrel, a four-year low.
“From the point of view of Russian interests, this deal [to cut production] is simply meaningless,” Mikhail Leontiev, a spokesman for the Russian oil giant Rosneft, told a Russian media outlet Sunday night.
He said the U.S. would be sure to step up shale production if production is cut. (RELATED: REPORT: Chinese Censors Jumped In To Suppress Online Messages Warning About Coronavirus Spread)
“We, yielding our own markets, remove cheap Arab and Russian oil from them to clear a place for expensive American shale. And to ensure the efficiency of its production. Our volumes are simply replaced by the volumes of our competitors. This is masochism,” Leontiev added.
President Donald Trump imposed sanctions on Rosneft in February for transporting Venezuelan oil. The president says Russia is propping up the Maduro regime in shipping oil to the socialist country.
Some analysts said the problem could metastasize, dropping oil prices still further.
″$20 oil in 2020 is coming,” Ali Khedery, a former U.S. official in Iraq, wrote Saturday on Twitter. “Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc. — may prove existential 1-2 punch when paired with COVID19.”
Others believe a market overreaction to the virus spread could trigger an actual emergency.
“This doesn’t make any sense,” Jay Park, CEO of oil and gas company ReconAfrica, told the Daily Caller News Foundation in February as prices were ebbing.
“The market is overreacting to what coronavirus might mean,” he said, referring to a relatively small drop in oil production before prices dropped off the table. Park then said that the fears related to the virus could hamper global supply in the near future if they get out of hand.
Meanwhile, the S&P 500 fell more than 7% Monday, triggering a so-called circuit breaker, which temporarily halts trading below that level for 15 minutes to effectively restart the day’s activities.
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