On 8 March 2020, Saudi Arabia initiated a price war with Russia, triggering a major fall in the price of oil, with US oil prices falling by 34%, crude oil falling by 26%, and brent oil falling by 24%. The price war was triggered by a breakup in dialogue between the Organization of the Petroleum Exporting Countries (OPEC) and Russia over proposed oil production cuts in the midst of the 2019–20 coronavirus pandemic. Oil prices had already fallen 30% since the start of the year due to a drop in demand. The price war is one of the major causes of the currently ongoing global stock market crash.
Beginning in 2014, U.S. shale oil production increased its market share; as other producers continued producing oil, prices crashed from above $114 per barrel in 2014 to about $27 in 2016. In September 2016, Saudi Arabia and Russia agreed to cooperate in managing the price of oil, creating an informal alliance of OPEC and non-OPEC producers that was dubbed "OPEC+." By January 2020, OPEC+ had cut oil production by 2.1 million barrels per day (bpd), with Saudi Arabia making the largest reductions in production.
As a result of the 2019–20 coronavirus pandemic, factory output and transportation demand fell, bringing overall demand for oil down as well, and causing oil prices to fall. On 15 February 2020, the International Energy Agency announced that demand growth would fall to the lowest rate since 2011, with growth falling by 325,000 barrels per day to 825,000 barrels per day, and a contraction in consumption by 435,000 barrels per day. Although demand for oil was falling globally, a drop in demand in China's markets, the largest since 2008, triggered an OPEC summit in Vienna on 5 March 2020. At the summit, OPEC agreed to cut oil production by an additional 1.5 million barrels per day through the second quarter of the year (a total production cut of 3.6 million bpd from the original 2016 agreement), with the group expected to review the policy on 9 June during their next meeting. OPEC called on Russia and other non-OPEC members of OPEC+ to abide by the OPEC decision. On 6 March 2020, Russia rejected the demand, marking the end of the unofficial partnership, with oil prices falling 10% after the announcement.
In February 2020, the Trump administration put sanctions on Russia's largest oil company Rosneft. Russia may have seen the oil war as a way to retaliate against U.S. sanctions, some media outlets claim.
It is confirmed that both Russian and Saudi officials deny the existence of a price war against each other or any other country. Russian Presidential Press Secretary Dmitry Peskov said that new planned contracts can be implemented immediately if necessary. During the negotiations, Russian officials have argued that it was too early for cuts before understanding the full impact the virus outbreak has on oil prices, and that an existing shortfall of about one million barrels a day, caused by the political turmoil in Libya, was helping to offset a slump in demand at the time.
Pavel Sorokin from the Russian Ministry of Energy doubted that the cuts would work with stating following quotes: "We cannot fight a falling demand situation when there is no clarity about where the bottom is." "It is very easy to get caught in a circle when, by cutting once, you get into an even... worse situation in say two weeks: oil prices would shortly bounce back before falling again as demand continued to fall." when asked in interviews. More reports confirm the Russian side made a proposal to extend the current OPEC+ combined cuts of 1.7 million barrels per day for at least 3 months, in order to assess the real impact the coronavirus crisis has on oil demand before more cuts, with OPEC refusing ultimately.
On 8 March 2020, Saudi Arabia announced unexpected price discounts of $6 to $8 per barrel to customers in Europe, Asia, and the United States. The announcement triggered a free fall in oil prices and other consequences that day, with brent crude falling by 30%, the largest drop since the Gulf War. The West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing fell 20%. On 9 March 2020, stock markets worldwide reported major losses thanks in part to a combination of price war and fears over the coronavirus pandemic. Effects were felt outside of oil prices and stock markets as well; following the announcement, the Russian ruble fell 7% to a 4-year low against the U.S. dollar. In the days after the announcement, oil prices and markets recovered somewhat, with oil prices increasing by 10%, and most stock markets recovering the day after Black Monday. On 10 March, Saudi Arabia announced that it would increase its production from 9.7 million barrels per day to 12.3 million, while Russia planned to increase oil production by 300,000 barrels per day. At the time, Aramco's oil production capacity was just 12 million bpd, and the firm has been instructed to expand this to 13 million.
As demand continued to fall dramatically, oil prices went down further, reaching a 17-year low on 18 March where Brent was priced at $24.72 a barrel and WTI at $20.48 a barrel.
Saudi Aramco announced a cut in capital expenditures from $35–40 billion planned to $25–30 billion. The government also increased its debt ceiling from 30 to 50 percent of GDP, due to both oil prices and the impact of the pandemic, and planned to cut its spending by 5 percent as its budget deficit was expected to increase from 6 to 9 percent.
The Russian government had initially forecast that it would run a surplus of 930 billion roubles ($11.4 billion) in 2020, but following the outbreak of the price war stated that it expected to run at a deficit. The ruble's dropped, having fallen over 30 percent between the start of 2020 and 18 March.
Prior to opening on Monday, the Dow Jones Industrial Average futures market fell over 1,300 points and suspended trading as a result due to a combination of coronavirus concerns and the oil price war. On Monday, 9 March 2020, stock markets globally experienced major point drops due to a combination of panic over the 2019–20 coronavirus pandemic and the price war between Saudi Arabia and Russia. The Dow Jones fell over 2,000 points, or 7.8%, exceeding the futures market prediction and becoming the largest point drop in its history. Other stock markets were similarly affected, with the S&P 500 contracting by 7.6% and the NASDAQ Composite contracting by 7.2%. Italy's FTSE MIB suffered the largest drop in percentage, with the index falling 11%. In the United States, the drops triggered circuit breakers designed to prevent stock market crashes, leading to 15-minute pauses in trading.
In response to the drop in price, multiple oil producers in North America cut the drilling of new wells. Shale oil producers in North America generally require oil prices above $40 per barrel to sustain operations, and the cuts in new oilfields is expected to nullify the expected growth in US oil production. At $35 per barrel of crude oil, only 16 shale producers could operate new wells profitably, and most producers had expected a per barrel price of $55–65 in 2020. Consultancy Wood Mackenzie estimated that with Brent at $25/barrel, 10% of oil production globally would not be able to cover its base operating cost, particularly heavy crude oil producers such as Venezuela, Mexico and oil sands in Canada, where the price dipped below $5 per barrel. The U.S. Energy Information Administration forecasts show that U.S. crude oil production would fall from 13.2 million bpd in May 2020 to 12.8 million bpd in December 2020 due to the price war, and would then fall to 12.7 million bpd in 2021.
Iraqi and Kuwaiti oil producers also announced price discounts to their buyers, though Iraq's discount was lower than that of Saudi Arabia's. The United Arab Emirates also announced an increase in production to 4 million barrels per day, higher than the country's estimated output capacity of 3.5 million bpd.
Norway, Europe's largest oil exporter, saw a drop in its currency to historic lows against the Euro, with the Norwegian Central Bank preparing a currency intervention for the first time in two decades. Nigeria's naira also recorded significant depreciations against the dollar, while the country's stock market and bond prices (alongside Angola's) fell.