<span>Oil crashed nearly 31 per cent at the start of trading on Monday, the steepest daily drop since the Gulf War in 1991, before recovering some of its lost ground later. The fall came after the break-up of the Opec+ alliance last week, which </span><span>had helped to resuscitate markets from a previous price slump in </span><span>2016.</span> The deep plunge in prices came amid indications that Saudi Arabia, the world's third-largest producer, will significantly ramp up production as members of the erstwhile alliance prepare themselves for a price war by flooding the markets with cheap oil. Brent, the most widely traded benchmark, was down 21.45 per cent to $35.56 per barrel at 5.28pm UAE time, while West Texas Intermediate was down 21.27 per cent, at $32.50 per barrel. The benchmarks suffered their worst one-day fall in 29 years as the alliance of Opec members and non-members led by Russia failed to agree to additional production cuts to steady markets roiled by the impact of the coronavirus. Opec+ was formed in 2016 to counter the rising tide of US shale, which propelled the country to become the world's top producer of oil, turning it from a major importer of oil into a substantial exporter. Opec+, which has been cutting back 1.7 million barrels per day from oil markets since January, convened in Vienna last week to discuss further actions to offset the decline in demand due to the coronavirus outbreak. <span>However, Russia remained sceptical about the impact of the virus and did not agree to Opec's plans for additional </span><span>cuts of 1.5 million bpd. Concerns related to the </span><span>virus led to a </span><span>sell-off across markets globally that wiped out $10 trillion over the course of three weeks.</span> Saudi Arabia could now boost production to as much as 10.5 million bpd next month, after the expiration of the Opec+ pact at the end of April. Saudi Aramco, the state-backed producer, has slashed prices for its Asian buyers, suggesting it was preparing for an aggressive price war as it boosts output. Riyadh needs higher prices to plug its deficit of nearly $50 billion this year, while the Kremlin is more resilient to lower prices. But analysts say Russian hardiness could be short-lived. "If prices sink to below $30 per barrel into the $20s per barrel there might well be a compromise within three months," Fereidun Fesharaki, chairman of Facts Global Energy, said in a note on Monday. "If prices remain in the $40s per barrel, the compromise can take up to a year. The Russians can tolerate $40 per barrel but not prices in the $20s per barrel. Opec will be seriously hurt by prices below $50 per barrel. There will be a strong incentive for a compromise on all sides," he said. The International Energy Agency on Monday said it expected global oil demand to contract in 2020 - the first full-year decline in more than a decade. "For 2020 as a whole, the magnitude of the drop in the first half leads to a decline in global oil demand of around 90,000 bpd, the first annual fall since 2009," the agency noted in its report. Meanwhile, Swiss bank UBS revised down its forecasts for Brent to $40 per barrel for the second quarter, with $45, $50 and $52 per barrel expected for the subsequent three quarters. The bank had previously estimated the benchmark to average at $62, $64 and $65 per barrel over the same period. "We still expect a price recovery over our forecast horizon, but it will be contingent on supply adjustments [the pain of low prices might unite Opec+ with the group delivering new cuts, and/or lead to a drop in US crude output]," Giovanni Staunovo, commodity analyst at UBS, said in a note on Sunday. Meanwhile, Abu Dhabi National Oil Company lowered the price for the flagship Murban crude by $11.70 per barrel to $56.10 per barrel for February, the company said in a note to its customers. The UAE's largest producer backed Saudi Arabia in offering discounts to buyers following the collapse of the Opec deal.
