However, with this decision of Saudi Arabia, large energy consumers--India and China may chin up to receive an oil bonanza.
Oil cartel OPEC in-corportaion with large oil producers were looking at extending and expanding the ongoing production cuts beyond March to counter low oil prices of sluggish demand conditions in an oversupplied market.
On Saturday, the Saudis who account for almost a fifth of India's oil imports, deeclared an all-our price war by reducing price for its crude by the most on more than 30 years. State energy giant Saudi Aramco is offering heavy discounts on crude in markets such as ASia, Europe and the US to attract refiners to use Saudi crude.
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However, for India, this price reduction refers to the unprecendented gains as the country imports nearly 83 per cent of its oil requirements. Each fall in dollar price of crude reduces the import bill by almost Rs 3,000 crore. A discount of day about 10 per cent on crude price of just about $ 45 a barrel now would help the country to save more than $2 billion.
Kotak Mahindra Bank managing director and CEO Uday Kotak in a tweet said, "Amidst turbulence and the virus, some good news: oil at $45/barrel. Recent $20 drop saves India $30 billion in per annum. Also global interest rates have collapsed making money cheap. Let's leverage these for policy to bosst growth."
This would, however, rely on current prices holding up for the rest of the year. As per the analysts, oil may remain under pressure for a long time and may range between $ 50-60 a barrel in financial year 21.
A cut in prices by the Saudis is expected to be followed by other oil producers in lieu to protect their market. Analysts said this could trigger a price war much to the gain for India.
In the wake of coronavirus spread, some oil producers already facing demand squeeze. The Saudi price cut could only add to their woes putting the entire oil market into chaos. Saudi Arabia has already indicated it could raise production much higher if needed, even going to record 12 million barrels per day.
Aramco's unprecedented pricing move came just hours after the talks between the Organization of Petroleum Exporting Countries and its allies ended in dramatic failure. The breakup of the alliance effectively ends the cooperation between Saudi Arabia and Russia that has underpinned oil prices since 2016.
This also resulted in a crash of stock markets across the Gulf. Saudi Arabia's stock exchange, the Tadawul, was down 7.7 per cent in afternoon trading. The Abu Dhabi index fell 5.8%, Dubai's Financial Market General Index was down 7.47 per cent.
Shares of Saudi state oil giant Aramco traded below their original IPO price for the first time Sunday, at 30.90 riyals ($8.24) in Riyadh compared to the listing price of 32 riyals in December. That's down 6.36 per cent on the day.