Share prices have followed suit, with billions of dollars wiped off stock markets around the world. It is hard to overstate the consequences of the rout.
The split has underlined the diminished influence of Opec, the club of oil-producing nations that in its heyday held the world in its thrall.
Its governing statute stipulates that the group's goal is, among other things, to "work together to ensure stable oil prices".
What this has meant in practice is that prices should be low enough to support global growth but, most importantly, high enough to sustain the budgets of member countries.
But Opec's grip on world production is not what it was.
The rising dominance of homegrown American production — the US has become the world's largest producer of oil over the past decade — has upended the global energy industry.
Since 2016 Saudi Arabia has relied on other countries outside of the cartel, notably Russia, to help it influence the market as part of a wider, so-called Opec+, alliance.
It was Russia's refusal late last week to join in production cuts that prompted Saudi Arabia to pull the trigger and launch a price war, boosting its own output and selling crude at a discount.
But Riyadh's gambit, driven in part by a desire to undermine debt-laden US shale producers and to gain market share from Moscow, is likely to prove costly for everyone involved.
The alliance with Russia has all but unravelled. Moscow made clear on Monday it is digging in for a price war, declaring it could withstand oil prices of US$25-US$30 ($39.46-$47.35) per barrel for six to 10 years. Russian state group Rosneft is expected to raise output next month.
A period of sustained low oil prices would be bad news for an industry already out of favour with investors over its damaging impact on the climate. It could force larger producers to rethink their dividend policies and curb spending.
Energy companies have been the biggest issuers of junk bonds, accounting for more than 11 per cent of the US high-yield market. America's shale industry would be among the biggest losers.
Even before the coronavirus hit demand, there had been rising concerns about the sector's health given the accumulation of dangerous levels of debt.
A persistent low oil price — West Texas Intermediate, the US benchmark, dropped to US$30 a barrel on Monday — will hurt smaller players.
Hedging strategies may cushion the blow but at an oil price of US$30-US$35 a barrel, vast swaths of the US shale industry will be unprofitable. There is also little appetite among investors to help refinance these companies.
There will be silver linings to a price war. The lower oil price will benefit some industries including aviation, although hedges will delay any upside and for many carriers it will not make up for a collapse in passenger demand. US motorists will reap the benefits of lower pump prices.
Yet unlike 2014 — the last time Saudi Arabia flooded the market with oil — this time there is little evidence of demand for more of its supplies.
The International Energy Agency on Monday warned global oil demand will fall this year for the first time since 2009.
Saudi Arabia's game-playing would be risky at any time, but when the world is battling coronavirus it looks irresponsible.
Written by: The editorial board
© Financial Times
