Oil sinks on Saudi move as equities lose early puff on virus fear

Oil prices tumbled on Wednesday after Saudi Arabia dialled up its price war by hiking production by one million barrels a day, while a rally in equities went into reverse as investors nervously await a US coronavirus relief plan.

Markets had been showing signs of much-needed stability in early trade following two days of wild gyrations, thanks to a pledge by US President Donald Trump to unveil measures to counter the effects of the disease on the world's biggest economy.

Crude had provided support, rising for a second day after Monday's meltdown that marked the commodity's worst selloff since the 1991 Gulf War.

But jittery investors slowly sold out of the oil market as Wednesday wore on and then slumped deep into the red after energy titan Saudi Aramco said it plans to raise its output capacity to 13 million barrels a day.

"Saudi Aramco announces that it received a directive from the ministry of energy to increase its maximum sustainable capacity from 12 million bpd to 13 bpd," the company said in a statement to the Saudi Stock Exchange.

The hike marks the next volley in a production standoff with Russia sparked by Riyadh at the weekend, when it cut prices, sparking fears of a war for market share.

Both main crude contracts fell more than one percent, having been up as much as five per cent earlier in the day.

The move also came after Russian Energy Minister Alexander Novak told state-run TV channel Rossiya 24 that Moscow was open to cooperation with the Saudis and OPEC to address the price crisis, saying: "I want to say the doors aren't closed."
"Indeed, investors were in desperate need of leadership from policymakers. Central banks can do their bit, but in times of viral cataclysm, it's governments that must be seen as in charge of the proceedings... Trump's actions evidenced how little it takes for markets to respond favourably."