Crude drops 30%, dips below $28 as OPEC deal collapses

Oil prices slumped more than 30% on Monday in Asia after OPEC failed to reach a deal with its allies on production cuts, while Saudi Arabia is reportedly set to cut its prices and ramp up production.

US Crude Oil WTI Futures lost 32.41% to $27.92 by 11:30 PM ET (03:30 GMT). International Brent Oil Futures slumped 30.0% to $31.92.

Saudi Arabia announced massive discounts to its official selling prices for April over the weekend, and is reportedly ready to up its production above the 10 million barrel per day level.

The Kingdom currently pumps 9.7 million barrels per day, but has the capacity to ramp up to 12.5 million barrels per day, CNBC said.

“This has turned into a scorched Earth approach by Saudi Arabia, in particular, to deal with the problem of chronic overproduction,” Again Capital’s John Kilduff said. “The Saudis are the lowest cost producer by far. There is a reckoning ahead for all other producers, especially those companies operating in the US shale patch.”

The news came after talks in Vienna broke down last week. OPEC recommended deeper production cut starting April, but its ally Russia rejected the proposal when the 14-member cartel and its allies, known as OPEC+, met on Friday.

They also failed to agree on extending the production cuts already in place, which is set to expire on April 1.

“As from 1 April we are starting to work without minding the quotas or reductions which were in place earlier,” Russian Energy Minister Alexander Novak told reporters Friday at the OPEC+ meeting in Vienna, before adding, “but this does not mean that each country would not monitor and analyze market developments.”

Goldman cut its second and third quarter Brent forecast to $30 per barrel, and said that prices could dip into the $20s.

“We believe the OPEC and Russia oil price war unequivocally started this weekend when Saudi Arabia aggressively cut the relative price at which it sells its crude by the most in at least 20 years,” Goldman Sachs (NYSE:GS) analyst Damien Courvalin said in a note on Sunday.

“The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” the firm added.

Oil prices were already suppressed since January as the coronavirus outbreak stoked fears about a slowdown in demand. Global confirmed cases increased to almost 107,000 as of Sunday, according to the latest figures from the World Health Organization.