Shares of the world’s largest oil producers like BP, Royal Dutch Shell, and Chevron plummeted alongside global markets on Monday morning after news of a shocking oil price war between Saudi Arabia and Russia broke over the weekend, adding further uncertainty to a market already rattled by the spread of the coronavirus.
- Shares of BP plummeted 18.8% to $25.39 by 11:30 a.m. ET on Monday— that translates to nearly $20 billion in lost market value since the close of markets on Friday.
- Royal Dutch Shell dropped 14.1% to $18.23 per share—that’s $25 billion in value lost.
- Chevron lost 13.5% ($23 billion) and ExxonMobil lost 9.8% ($19 billion).
- The Brent crude benchmark was trading at $36.82, down 18.6%; it’s on track for its worst day since 1991.
- The shock to oil markets is coming from two directions, according to analysis from UBS: the coronavirus outbreak has dramatically reduced economic activity and slowed down travel, reducing demand, and the oil price war could lead to a major supply glut as Saudi Arabia ramps up production.
Key background: Over the weekend, Saudi Arabia—the world’s largest oil exporter—slashed its prices to levels not seen in 30 years after it could not convince Russia to agree to production cuts. The 14 members of OPEC (the Organization of the Petroleum Exporting Countries) along with some non-members, including Russia, met last week to discuss how to respond to the lagging demand caused by the spreading coronavirus. After negotiations fell apart, Saudi Aramco, the Saudi state-owned oil company, said it will offer major discounts in order win over buyers. It’s planning to boost production to more than 10 million barrels a day and has even told some market participants that it could raise production to a record 12 million barrels a day, Bloomberg reports. Oil prices had lost more than 30% by Monday morning in response to the sudden supply shock.
Crucial quote: “This partnership could have broken down at any time, but the fact that it happened during a serious demand shock is a big deal,” says Ted Hall, VP of Market Strategy for the Americas at Kayrros. “This is a unique pairing of a black swan demand event with a rare supply shock.”
Chief critic: President Donald Trump tweeted on Monday morning that the market’s dramatic fall was caused by the oil price war and the media, and that falling oil prices would be good for the consumer.
Forbes
