The price of oil had already fallen sharply this year as the coronavirus disease began to spread internationally, with demand for fuel expected to decline. Last week, oil exporters' group Opec which includes Saudi Arabia agreed to cut production in order to support prices.It comes after big falls in Asia, with Japan's Nikkei 225 index down 5% while Australia's ASX 200 slumped 7.3%, its biggest daily drop since 2008.
Markets have been rattled by the threat of a price war between oil exporting group Opec and its main ally Russia. The wobble compounds fears over the effect of coronavirus on the economy.However, it also wanted non-Opec oil producers such as Russia to agree to cuts, and on Friday Russia rejected the plans.
In response, Saudi Arabia has cut its official selling prices for oil and plans to increase production. The move is seen as Saudi Arabia flexing its muscles in the oil market to make Russia fall into line.
Michelle Wiese Bockmann, commodities analyst and editor for Lloyds List, said that the oil market has changed over the last few years and Saudi Arabia is scrambling to maintain its position in the market.
While cuts in production from Venezuela, Iran and Libya should have sent prices up, the US and its massive reserves of shale oil have stepped in at every turn, depressing prices. "It's already a very volatile situation," she said.
The market has "gone from an issue over economic demand into more of a political game of poker", Mr Urquhart-Stewart said.
Given that Saudi Arabia has some of the lowest costs of production, they can send prices down a long way before having to relent, he added. An awful day for stock markets, but the oil market positively fell out of bed when the week began.
The price of crude oil is about half the level it hit in early January. The root cause of that is the coronavirus. It has hit demand for oil and some of the big exporters have been trying to stabilise its price.
Last week a group of them discussed production cuts. But the biggest producer among them, Russia refused and the oil price fell further.
Then at the weekend, Saudi Arabia, the biggest of the producers that were pressing Russia to agree output cuts, announced it would increase supplies and offered discounts to its buyers. That sent the oil price into freefall.
That in turn undermined stock markets, although it wasn't the only factor. The lower oil price is a problem for the credit markets.
Many American shale producers are likely to be unviable and they have borrowed in the high risk debt market, issuing what are called junk bonds. So there is the potential for losses for investors who hold those bonds.
Cheaper oil is obviously a benefit for users. Airlines have been hit by a decline in bookings, but cheaper fuel will offset that a little. And in time, there will be an impact on the price that motorists pay, although in many countries, including Britain, tax accounts for most of what they pay.
