Oil prices surged more than six per cent in Asian trade on Tuesday after witnessing the worst fall since 1991 Gulf War, on Monday, as Saudi Arabia shocked the market by launching a price war against Russia.

West Texas Intermediate was trading up 6.1 per cent at more than USD 33 a barrel while Brent crude advanced 6.6 per cent to over USD 36 a barrel.
On Monday, crude was trading down 22 per cent to $32 a barrel. Brent crude, the global benchmark, had also plunged 22 per cent to $35 a barrel, a plunge by almost a third.

US oil prices crashed as much as 27 per cent to a four-year low of $30 a barrel.
Late last week, talks between oil cartel Organization of Petroleum Exporting Countries (OEPC) and Russia collapsed as the two sides failed to agree on an output cut deal. This pushed Saudi Arabia, the world’s largest oil producer, to cut its crude prices and announce increase production leading to mayhem in an already oversupplied oil market.

OPEC and other producers supported the price cuts as they sought to stabilize falling prices caused by the economic fallout from the deadly coronavirus outbreak.

“Investors are buckling in for a protracted and precarious battle of the oil mega powers for world dominance,” AFP quoted Stephen Innes, chief market strategist at AxiCorp as saying.

He said it was unclear whether the Saudi move was “a short-term strategy or will be sustained for a prolonged period — which makes the outlook for crude prices extraordinarily uncertain”.

The current crude oil prices are just marginally higher than the decadal low of $26 a barrel in early 2016 with analysts fearing that it may touch that level soon.

Saudi Arabia is aiming to boost its crude oil output of over 10 million barrels per day in April after the current supply deal between OPEC Russia ie OPEC+ expires in March.

The failure of OPEC-Russia deal on production cuts has the genesis on growing prowess of the United States in oil export market. Russia has been dropping hints that the real target is the US shale oil producers as any production cuts by them help US producers extra space in the market. OPEC led by Saudi Arabia wants production cuts to be expanded in an oversupplied market to prevent further erosion in oil prices that is also facing huge demand squeeze aggravated by the spread of Coronavirus.

The fear in the market now is that oil prices may crash further as Saudi Arabia is taking aggressive stance and is expected to flood the market with crude in a bid to recapture market share. Analysts have said that Saudi Arabia had slashed its April official selling prices by $6 to $8 a barrel in a bid to retake market share and heap pressure on Russia.

(With agency inputs)