DAVID GREENE, HOST:
Global oil prices are collapsing. This is happening because Saudi Arabia launched a price war against Russia over the weekend after the world's two largest oil exporters failed to reach a deal. In a startling move, the kingdom slashed its export oil prices. This is causing turmoil across the financial markets. And let me bring in NPR's transportation energy correspondent Camila Domonoske. Hi, Camila.
CAMILA DOMONOSKE, BYLINE: Hi.
GREENE: OK. I'm even confusing myself just beginning to explain this, so I'm just going to hand it over to you. Can you help us understand exactly what's happening here because it's really important?
DOMONOSKE: Yeah, so this starts with the coronavirus. So this outbreak occurs, and everyone's trying to stop a pandemic. And what that means is people stop moving around; events get canceled; people avoid traveling on planes; businesses might shut down temporarily. All of these things reduce the demand for fuel. So demand goes down, prices go down and that hurts oil producers like Saudi Arabia.
So for weeks, Saudi Arabia has been doing what you would expect them to do which is trying to push prices back up. Saudi Arabia was talking to all the other countries in OPEC. I mean, this is what OPEC exists for.
DOMONOSKE: It's a cartel of oil producers trying to stabilize prices in times like this. So they tried to strike a deal to cut production across the globe and shore prices up. The problem is that OPEC isn't as powerful as it used to be, and it can't move markets all by itself. It needs some more muscle now. And lately, that's been coming from Russia. Russia is not an OPEC member, but it's been cooperating with OPEC countries on cuts recently.
But this time, despite Saudi Arabia's best efforts, Russia said no. They didn't want to do more cuts. And Saudi Arabia lost that fight. Those talks collapsed late last week. And after they were done, Saudi Arabia said fine. If we can't keep prices up, then we will push them as low as we possibly can.
GREENE: So is this just about being angry at Russia? Like, why would Saudi make this 180-degree turn?
DOMONOSKE: It is definitely partly. I mean, you can look at it as punishment on Russia for walking away or a way of pressuring Russia to come back to the table. This is a tactic that Saudi Arabia has done before. I mean, it's worth emphasizing, low oil prices hurt all oil suppliers including Saudi Arabia. This is very hard on the kingdom's economy.
But the Saudis are making a bet. They have a ton of oil, and they can produce it much more cheaply than anybody else can. So even though they're hurt too in a low-price environment, they think they can outlast some of their rivals, specifically Russia in this case.
GREENE: And there could be real global ramifications from this.
DOMONOSKE: Yes, I mean, it doesn't just hurt Russia. It doesn't just hurt Saudi Arabia. Any country that relies on producing oil, which is a lot of countries, is going to feel the pain from this price war. A lot of American oil and gas producers who - many of whom are already struggling in the current market, they're going to be hurt by this.
And it's had effects already across markets, right? So crude prices plunged 30% which is their biggest drop in decades. This made the stock markets go a little haywire over the weekend. At one point, Dow futures dropped 1,000 points. S&P 500 futures dropped so much that automatic safeguards kicked in, in order to limit trading. Asian markets are down broadly this morning - definitely causing some chaos.
GREENE: And we should say this is such a volatile global economy right now, and oil plays such a big role. So where might this head?
DOMONOSKE: Well, the question is, how low does it go? And how long does it last? I think it's also worth remembering what this is all about which was the coronavirus, right? That reduced demand for oil.
I spoke with oil analyst Ellen Wald, who said this might be an obstacle for Saudi Arabia's plan to claim market share here.
ELLEN WALD: Now they're cutting prices, they're going to increase production but it's not clear they're going to have buyers for that oil.
DOMONOSKE: If you're not traveling because of fears of a pandemic, low prices won't change your mind.
GREENE: NPR's Camila Domonoske. Thanks so much, Camila.
DOMONOSKE: Thank you.
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