Saudi Arabia announced a stunning discount in oil prices on Sunday, letting customers in Asia, the United States and Europe snap up supply at US$6 to US$8 discount per barrel.

This measure sent oil prices and stock indexes into free-fall, as crude oil traded at US$28 to US$32 per barrel.

As recent as 2014, prices went as high as US$115 per barrel.

U.S. consumers will get cheaper fuel prices

United States consumers are likely to see lower prices at the gas pump.

American oil producers, though, could be hurt by the oil price slide, as America leads the world in output.

Going against logic

Instead of cutting oil production to stem falling prices, Saudi Arabia -- the world's second-largest producer -- this weekend said it will actually boost oil production in a dramatic reversal in policy.

Days before, Saudi Arabia, the rest of OPEC (Organization of the Petroleum Exporting Countries), and Russia failed to agree on production cuts to combat falling prices stemming from coronavirus epidemic fears that will halt world economic growth.

Oil prices had already fallen more than 30 percent in 2020 before Sunday's further collapse.

Saudi strategy to grab market share

Saudi Arabia and other OPEC members sought to cut production to shore up oil prices.

But the once-powerful cartel can no longer move markets alone without Russia's participation.

Russia, which is not an OPEC member, has recently been coordinating with the organisation.

However, Russia did not go with production cuts and the talks ended failed on Friday, March 6.

OPEC and its allies announced no new reductions and didn't even commit to extending current cuts.

Saudi Arabia going head-to-head with Russia

The logic of cutting oil prices at this stage is due to Saudi Arabia taking on Russia for dominance.

If Saudi Arabia cannot move prices upwards, its cutting of prices is to retain market share.

In all, Saudi Arabia is cutting the oil price for the U.S. market by S$7 per barrel, to Europe by S$8, and Asia by S$6.

Such a strategy is paired with Saudi Arabia's ability to rapidly increase production and unilaterally cutting crude oil prices for everyone.

Low oil prices are bad for Saudi Arabia's budget though.

But because Saudi Arabia's production costs are the lowest in the world, lower prices can hit other producers harder.

Even though Russia is being targeted, American oil and gas producers, including the fracking industry, will also be hurt

Despite this unilateral move, Saudi Arabia is not guaranteed to come out on top in a prolonged face-off with Russia.

It's not even clear if there are going to be buyers for that oil.

Lower fuel prices can offer some relief to the airline industry, with travel cancellations leading to flight cuts.

World markets hit

The oil price shocks reverberated throughout financial markets.

Dow futures dropped more than 1,000 points.

S&P 500 futures hit their limits after tumbling 5 percent.

The 10-year Treasury note yield fell below 0.5%, a record low.