Oil Prices Drop More Than 25% Amid Russia-Saudi Arabia Price War Over Coronavirus

Oil prices plummeted more than 25% on Monday, as Russia and Saudi Arabia disputed a deal with decreased oil demand due to the coronavirus.

As of 4:40 p.m. EST, Brent Crude has dropped 25% to $34.17 a barrel, while West Texas Intermediate had dropped nearly 26% to $30.89 a barrel. The oil markets have been affected by a decrease in Chinese demand due to the ongoing coronavirus outbreak.

Earlier in the day, Brent Crude dropped nearly 23% to $31.02 as of 10 p.m. EST, while West Texas Intermediate plummeted 34% to $27.34.

"The main reason why coronavirus is a threat to oil prices is that China is the main new consumer of oil in the world,” Cailin Burch, a global economist at the Economist Intelligence Unit told NBC News.

In response to the reduced demand, members of the Organization for Petroleum Exporting Countries have tried to figure out how to cut oil production.

On Friday, a three-year OPEC supply agreement fell apart, with Saudi Arabia and Russia disagreeing on cuts to production. Riyadh was interested in deeper cuts, while Moscow refused to cut production, saying countries can produce as much oil as they like. Russia believes that cutting oil output would benefit the U.S. shale industry, which competes with the Russian energy sector.

In response to Russia’s refusal to cut production, Saudi Arabia slashed oil prices and increased oil production to two million barrels a day. By implementing this strategy, Riyadh hopes to attract more buyers for its oil.

"They're cutting prices, they're going to increase production. But it's not clear they're going to have buyers for that oil,” energy markets analyst Ellen Wald told NPR, referring to Saudi Arabia.

The falling oil prices mean that drivers will pay less at the gas pump. In parts of the U.S., such as northeastern Ohio, gas prices are now under $2. President Trump has called the drop in gas prices “good for the consumer.”