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Mark O' Donnell
Research Analyst
March 9, 2020

Crude Oil Drops Below $30 as Market Opens

Crude Oil Drops Below $30 As Market Opens

WTI Crude Oil has experienced a tremendous sell-off as the price dropped 30%, falling below $30 a barrel. This is an unprecedented drop in the price of oil, with prices like this not having been seen since 1991 during the Gulf War. It comes off the back of the collapse of the OPEC+ alliance between Saudi Arabia and Russia, and Saudi Arabia deciding to slash oils prices as a result.

The OPEC, or Organisation of the Petroleum Exporting Countries, is an alliance between various oil producing countries, with Saudi Arabia its de facto leader as the country with the most oil production in the world. Saudi Arabia contains 18% of the world’s oil alone, and is the biggest exporter of oil, being comprised of 70% of its exports.

Originally a deal between the OPEC alliance and Russia to limit oil production, the collapse of the negotiations in Vienna led prices that were already declining to plunge even further. As Russia refused to agree to the terms, Saudi Arabia has now decided to engage in a price war instead, as it simultaneously promised to boost oil production to 10 million barrels a day in an attempt to gain more market share.

The market reaction to this move was immediate, as prices instantly dropped 30% as soon as the market opened. Trading at $45 per barrel when the market closed, prices dropped to $31, one of the biggest one day drops for oil in history.

As the biggest producer of oil in the world, Saudi Arabia is aiming to hit its competitors hard in order to win over new customers next month, which means that there is there is no floor for these prices to drop to. According to Goldman Sachs, Saudi Arabia could very well let oil drop down to $20 a barrel before they stop. Saudi Arabia could also be putting this enormous pressure on Russia in order to drive them back to the negotiating table.

This latest news throws an already skittish and volatile market into chaos once again. It comes just after what seemed to be the beginning of a market recovery, as US stocks seemed to finally be on the rebound after the crash experienced just a few weeks ago. The full effects of this price drop will only be made clear over the coming days and weeks, as we see just how long Saudi Arabia is willing to keep these prices going on for.

For more information, watch our video here by Anish Lal at BlackBull Markets, or on Instagram and Twitter at blackbull_markets and @blackbullforex, respectively.

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