* Saudi says it will lift output in fight for market share
* Russia says it can withstand low oil price for six to 10
years
* Oil demand set for first contraction since 2009 - IEA
(Updates with company share activity)
By Stephanie Kelly
NEW YORK, March 9 (Reuters) - Crude prices suffered their
biggest daily rout since the 1991 Gulf War on Monday as top
producers Saudi Arabia and Russia began a price war that
threatens to overwhelm global oil markets with supply.
A nearly 25% slump in oil prices triggered panic selling and
heavy losses on Wall Street's main stock indexes as the rapid
spread of coronavirus amplified fears of a global recession.
MKTS/GLOB
Saudi Arabia and Russia both said they would raise
production at the weekend after a three-year pact between them
and other major oil producers to limit supply fell apart on
Friday.
Moscow had refused to support the Organization of the
Petroleum Exporting Countries in making a deeper oil cut to cope
with the substantial fall in demand caused by the impact of
coronavirus on travel and economic activity. Brent crude futures LCOc1 fell $10.91, or 24.1%, to settle
at $34.36 a barrel. The contract fell by as much as 31% earlier
in the day to $31.02, its lowest since Feb. 12, 2016.
U.S. West Texas Intermediate (WTI) crude CLc1 fell $10.15,
or 24.6%, to settle at $31.13 a barrel. WTI earlier dropped 33%
to $27.34, also the lowest since Feb. 12, 2016.
Monday marked the biggest one-day percentage decline for
both benchmarks since Jan. 17, 1991, when oil prices fell a
third at the outset of the U.S. Gulf War.
Trading volumes in the front-month for both contracts hit
record highs.
Energy stock prices have also fallen sharply, and shale
producers began cutting spending in anticipation of lower
revenues. Exxon shares lost more than 12%, the largest one-day
percentage loss since Oct. 15, 2008, the height of the financial
crisis. Chevron's shares fell more than 15%, the biggest loss
since the October 1987 "Black Monday" market crash. "Over the weekend every company redid their numbers and
basically shale goes into survival mode in terms of capital
expenditure and activity," said Dan Yergin, vice chairman of IHS
Markit.
Saudi Arabia plans to boost its crude output above 10
million barrels per day (bpd) in April from 9.7 million bpd in
recent months, two sources told Reuters on Sunday. The kingdom
slashed its export prices at the weekend to encourage refiners
to buy more. Russia, one of the world's top producers alongside Saudi
Arabia and the United States, also said it could lift output and
that it could cope with low oil prices for six to 10 years.
OPEC, Russia and other producers had cooperated for three
years to restrain supply in a group known as OPEC+. Other
countries in that group are likely to raise supply and cut
prices to compete, adding to a market already awash with crude.
"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," Goldman Sachs said.
Saudi Arabia, Russia and other major producers last battled
for market share in 2014 in a bid to put a squeeze on production
from the United States, which has not joined any output limiting
pacts and is now the world's biggest producer of crude thanks to
a rapid rise in output from the shale sector.
The global outbreak of the coronavirus prompted de facto
OPEC leader Saudi Arabia to seek additional output cuts from the
OPEC+ group. More than 110,000 people have been infected in 105
countries and territories and 3,800 have died, the vast majority
in mainland China, according to a Reuters tally. China's efforts to curb the coronavirus outbreak has
disrupted the world's second-largest economy and cut shipments
to the biggest oil importer.
The International Energy Agency said oil demand was set to
contract in 2020 for the first time since 2009. The agency cut
its annual forecast and said that demand would contract by
90,000 bpd in 2020 from 2019. Major banks also have cut their demand growth forecasts.
Morgan Stanley predicted China would have zero demand growth in
2020, while Goldman Sachs sees a contraction of 150,000 bpd in
global demand. Bank of America reduced its Brent crude price forecast to
$45 a barrel in 2020 from $54 a barrel.
"The radical shift in policy suggests that Saudi will allow
inventories to build sharply over the next three quarters," said
a Bank of America Global Research report. "As a result, we now
expect Brent oil prices to temporarily dip into the $20s range
over the coming weeks."
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GRAPHIC: Brent crude oil prices collapse by most since 1991 as
'OPEC+' disintegrates https://tmsnrt.rs/2TzTrHs
CHART: U.S. oil may fall into $23.55-$27.35 range
Major milestones for big moves in light crude oil
prices https://tmsnrt.rs/39Aq3GJ
GRAPHIC: Saudi Arabia slashes key crude oil selling price https://tmsnrt.rs/33cWE37
GRAPHIC: U.S., Russia, Saudi oil output https://tmsnrt.rs/3cHrZPs
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