Late Monday, Saudi Arabia said it would start selling its oil in the U.S. market for the cheapest price it has offered in more than four years.
Oil prices have fallen sharply this year, particularly in recent months — the U.S. contract was trading at $100 a barrel as recently as July.
Saudi Arabia has tried to preach patience, but the message hasn't been well-received by its OPEC partners, as most have production costs well above where oil is currently trading but depend on that revenue to keep their governments in power.
The sudden price chop from the once-patient Saudis is a sign that the country with more oil reserves than anyone else on Earth and head of the OPEC cartel are worried about losing market share thanks to a surge in U.S. shale production.
Last month, the U.S. produced more oil than Saudi Arabia did. That's the first time that's happened in more than 40 years, and it's been playing havoc with the power dynamic in the oil world.
A race to the bottom for oil prices sounds great for consumers eager to hoover up savings on things like heating costs, gasoline, and jet fuel surcharges while travelling. But the reality of plunging oil prices could have some dire consequences for many parts of the economy.
The Canadian dollar, which is strongly correlated to oil prices, sold off heavily on the news, trading hands at 87.60, down almost half a cent on the day. That's the lowest the loonie has been since the summer of 2009, when Canada was emerging from a devastating recession.
"A snowballing effect is what we are seeing in crude oil price today," said Fawad Razaqzada, an analyst at Forex.com. "News that Saudi has cut its asking price to customers in the U.S. suggests even the largest OPEC producer is now worried about its market share. This does not bode well for the future of the cartel."
OPEC is scheduled to meet at the end of this month to discuss the issue.
The Saudis are expected to ask their oil partners to cut production in order to raise prices, but that's unlikely to be accepted since those countries are already feeling the squeeze of drying up oil revenues and wont' be eager to sell less oil so that the cartel as a whole will be better off as a result.
"Saudi Arabia does not appear willing to curb its supply," analysts at Commerzbank said in a report. "This makes it rather unlikely that any agreement to jointly reduce production will be reached ... and suggests that pressure on oil prices will persist."