The oil price has suffered an historic collapse on Sunday evening after Saudi Arabia shocked the market by launching a price war against onetime ally Russia. Since then, the oil market has fall by as much as 30% in what the largest single-day was drop since the U.S. invaded Iraq in 1991. Brent crude closes at $45.27 per barrel on Friday and plunged 30% on early trading to $31.02 per barrel, its lowest level since February 2016. West Texas intermediate (WTI), dropped $41.28 per barrel on Friday and opened at $34.27 per barrel on early trading today.

Since earlier this year, the spread of COVID-19 has prompted global market tumbling and uncertain. With China being the world’s largest importer of oil and second largest consumer of oil, implicated by the shutdown due to the coronavirus outbreak, crude oil consumption in the country has declined sharply, leaving a glut on the global market and triggering big price drops. Globally, changes and reaction in oil prices can be seen as being very significant.

Last Thursday, OPEC recommended additional production cuts of 1.5 million barrels per day starting in April and to be extended until the end of the year. However, Russia rejected the additional price cuts when the allies, known as OPEC+, met later on Friday, announcing that present oil prices were sustainable for the Russian economy and Russia had the tools to react to any adverse results of the spread of the coronavirus on the global financial climate. OPEC failures to strike a deal in cutting oil production fanned concerns that sends it into a price war. The failure of the Vienna meeting left the oil industry shell-shocked, sparking a 10% plunge in oil prices Friday. In the effort to retake market share and building up pressure on Russia, Saudi Arabia escalated the situation further over the weekend by slashing its April official selling prices by $6 to $8, all the while looking to increase its daily unrefined output by as much of as 2 million barrels per day into an increasingly oversupplied international market.

Now, Russia and Saudi Arabia, the two biggest exporters, are saying they’re going to maximize production and flood the market.

This move is basically a response to years of frustration – For years, Russia and OPEC has been cutting their oil production, while losing market share to U.S. shale, which has won a big piece of the market and turned U.S. into a major exporter for the first time in decades. The 2014-2016 oil crash caused dozens of oil and gas companies to file for bankruptcy and hundreds of thousands of layoffs. All the while, the US shale industry emerged from that period stronger and the United States would eventually become the world's leading oil producer. And now, as the two oil superpowers face-off, American oil companies may end up as the biggest victims. Russia's refusal to cut production is a slap to US shale oil producers, many of which need higher oil prices to survive. And now the Saudis also have announced big discounts on their crude, particularly on the one sold to U.S.

Pace of growth in the U.S. will be expected to slow in 2020. Oil prices have been floating around $50 to $60 all year. While at this rate, most companies can basically still turn a profit. But now, as the prices are in the $40s and continuing to dwindle, the impact will be massive. Declining demand, high competition, low profitability and market uncertainty is going to hit U.S. domestic industry hard. Long-term lower prices for the oil industry - both the industry and the economy will feel the effects. If the coronavirus outbreak is still not contained and the price of oil keeps falling fast, we may continue to see pump prices falling in the coming weeks. Near-term future looking bleak and prediction looking increasingly low-spirited for the balance of the years ahead. A recession in the US and the eurozone in the first half of the year was now “a distinct possibility”.