Crude oil rebounds in Asia after falling 30% at open

Singapore — 0255 GMT: Crude prices rebounded during midmorning trade in Asia Monday after dipping 30% at open following Saudi Arabia's announcement over the weekend on the biggest ever price cuts to its Asia-bound oil, in what is described as a "battle move" by analysts.

At 10:55 am Singapore time (0255 GMT), May ICE Brent crude futures were down $11.29/b (24.94%) from Friday's settle at $33.98/b, while the NYMEX April light sweet crude contract dipped $10.69/b (25.90%) at $30.59/b.

ICE May Brent settled down $4.72/b at $45.27/b Friday -- the lowest front-month Brent settle since June 22, 2017.

Oil prices fell after Saudi Aramco slashed pricing of its crude exports for April, including the biggest ever price cuts for its crude oil bound for Asia.

This comes after OPEC and key ally Russia failed to agree on further cuts to production as well as an extension to the current agreement, which expires at the end of March.

"That essentially allows producers from the group to open the taps and increase output at will come April 1, a situation we now expect to occur," ANZ analysts said in a report Monday morning.

Saudi Arabia cutting April prices for key export regions of Asia and Europe will likely set off a price war among producers in the Middle East and Russia, market participants said.

"The shock-and-awe Saudi strategy will propel oil markets into a period of radical uncertainty. Russia balking was one thing, but Saudi ramping up production is a bird of another feather," said Stephen Innes, chief market strategist at SPI Asset Management.

The supply battle comes amid a poor global demand outlook, which is expected to remain pressured due to the coronavirus outbreak.

"We estimate that the hit to demand in H1 will be approximately 1.6mb/d as the impact of COVID-19 spreads around the world," ANZ analysts said.

"There is no doubt that prices will come under pressure in coming days as the market contemplates the impact of a major supply and demand shock," the analysts added.

Further increases in the number of COVID-19 cases could potentially put more pressure on oil futures, analysts said.

"We're probably one US super spreader headline away from sending WTI reeling to the mid 20's prices could remain under pressure," said Innes.

"It sure seems inevitable that US virus headcount numbers will climb substantially higher from current levels, possibly in an explosive way, once testing is rolled out on a large scale, the oil market could remain under pressure for the foreseeable future until maybe Russia and the Saudis walk back their new world order for oil threat," Innes added.