Oil prices dramatically dropped as markets opened in Asia on Monday, down more than 25 per cent after a 10 per cent drop on Friday.
West Texas Intermediate crude fell $9 US to $32 and international benchmark Brent fell $11 to $34.
It was the largest single-day drop since 1991.
OPEC and key ally Russia failed to agree Friday on a cut to oil production that would have contained the plunge in the price of crude caused by the novel coronavirus outbreak’s massive disruption to world business. On Saturday, Saudi Arabia’s state oil giant Aramco slashed export prices.
“We’re seeing the outcome of a one-two punch in terms of a demand shock from the coronavirus … and on top of that this weekend’s news of a price war started after the breakdown of OPEC plus Russia arrangements,” said Blake Shaffer, an assistant professor of economics and public policy at University of Calgary.
Shaffer said the demand-side drop was expected but the more recent development of a price war is a supply-side issue that’s hammering the market.
“This is a really big move. I was an energy trader for 15 years. I don’t have all the daily moves in my head, but this would definitely be one of the biggest ones I’ve seen,” he said.
The Alberta government’s recent spring budget forecasts WTI will average $58 US a barrel in the coming year, and Shaffer said this is bad news both for the economy as a whole and for the province’s royalty revenues.
“Roughly every dollar [per barrel] is about $350 million to the government … We’re talking about a $7 billion decline in revenue expectations,” he said.