Oil Price Collapses Overnight in Sharpest Intraday Loss Since 1991

Russia and Saudi Arabia may be about to ramp up crude oil production. Image Credit: File Image / Pixabay

Crude oil prices plummeted on Sunday night and Monday morning after the collapse of the OPEC+ alliance determining output from the world's largest oil producing countries.

Brent crude futures dropped as low as $31.02/bl, the biggest decline since the Gulf War in 1991, down from Friday's close of $45.27/bl.

The OPEC+ coalition met last week for talks aimed at agreeing a production cut to stabilise the market after disruption caused by the COVID-19 virus outbreak, but no deal was reached.

"Saudi Arabia slashed its official prices by the most in at least 20 years over the weekend and signaled to buyers it would ramp up output -- an unambiguous declaration of intent to flood the market with crude," news agency Bloomberg reported Monday.

"Russia said its companies weree free to pump as much as they could," the agency added.

The front-month Brent contract was trading at $33.86/bl as of 7:27 AM in London Monday, down by $11.41/bl from Friday's close.

If crack spreads remained unchanged over the weekend, that would amount to a drop of about $72.45/mt in very low sulfur fuel oil (VLSFO) prices.

The immediate impact for the bunker industry will be that VLSFO prices will now be comfortably below the level shipowners were paying for high sulfur fuel oil (HSFO) at this point last year, meaning the price effect of the IMO 2020 transition has been eliminated.

Bunker demand from tanker companies could also surge if oil producers follow through with plans to increase production.

But if prices hold at this lower level over a longer period, those bunker companies with significant stocks in storage that they had bought at higher prices may find themselves in financial trouble.