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Aussie Petrol Prices Could Plunge To $1 Per Litre

Australia's petrol prices could soon plunge to $1 a litre as two countries spar over how much oil should be produced under increased uncertainty brought on by coronavirus.

A standoff between Saudi Arabia and Russia over oil production saw the price of oil fall more than 30 per cent overnight.

Global stock markets tumbled after Saudi Arabia launched a price war with Russia, spooking investors who were already on edge due to the uncertainty of the coronavirus outbreak.

Saudi Arabia had asked The Organisation of the Petroleum Exporting Countries members to collectively cut oil production by 1.5 million barrels a day, which Russia rejected.

Image: Getty

Saudi Crown Prince Mohammed bin Salman responded by slashing prices of Saudi crude and increasing its production.

This tactic was aimed at pressuring Russia to agree to price cuts but had huge geopolitical implications in the face of coronavirus.

“The oil price plunge adds a huge disruptive dynamic to markets that are already very fragile,” said Paul O’Connor, multi-asset head at Janus Henderson in London.

Saudi Crown Prince Mohammed bin Salman. Photo: AP

“We are seeing this week, finally, a full-scale liquidation and signs of capitulation, full-scale panic - we see this in every asset,” O’Connor said.

Jim Vogel, interest rate strategist at FHN Financial in Memphis, Tennessee, said that “nobody thought that Saudi Arabia would start a price war. Suddenly you have to re-evaluate what else could impact this.”

The oil dispute played a significant role in Australia's share market taking a hit, losing more than $140 billion in value on Monday.

But it could mean good news for Aussie motorists, with CommSec chief economist Craig James predicting petrol prices could also drop dramatically.

"The ready-reckoner is that every US$1 a barrel fall in the oil price leads to a one-cent fall at the petrol bowser," he wrote in a research note.

"Provided the Aussie dollar is reasonably stable, motorists may be able to look forward to filling up for near $1 a litre."

Fuel prices in Australia's capital cities on Sunday ranged from an average of $1.19 a litre in Adelaide to $1.536 in Hobart, according to Motormouth.com.au.

In Sydney, petrol was selling for $1.248, while it cost an average of $1.239 in Melbourne.

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With Reuters/AAP