Saudi Arabia, the world's biggest oil exporter, is attempting to punish Russia, the world's second-largest producer, by slashing the price of oil.
Saudi Arabia started a price war with Russia and has pledged to unleash its pent-up supply onto a market reeling from falling demand because of the coronavirus outbreak.
Oil prices have plunged more than 20 per cent after Saudi Arabia slashed its official selling price, putting futures at the lowest level since 1991, at the start of the first Gulf War and the lowest since February 12, 2016.
An official of the Saudi oil company Aramco watches progress at a rig at the al-Howta oil field near Howta, Saudi Arabia. The kingdom's plan to sell part of the company is part of a wider economic overhaul aimed at raising new streams of revenue for the oil-dependent country, particularly as oil prices struggle to reach the $75 to $80 price range per barrel analysts say is needed to balance Saudi Arabia's budget.
It was trading at $US35.75 (AUD$54.62) at 0114 GMT on Monday.
Brent crude futures fell by as much as $US14.25 (AUD$21.77), or 31.5 per cent, to $US31.02 (AUD$31.02) a barrel.
The move comes after Russia baulked on Friday at production cuts proposed by the Organisation of the Petroleum Exporting Countries (OPEC).
Saudi Arabia plans to boost crude output above 10 million barrels per day (bpd) in April after the current supply deal between OPEC and Russia, - known as OPEC+ - expires at the end of March, two sources told Reuters on Sunday.
Saudi Arabia, Russia, and other major producers last battled for market share like this between 2014 and 2016 to try to squeeze out production from the United States, now the world's biggest oil producer as flows from shale oil fields doubled the country's output during the last decade.
"Saudi Arabia and Russia are entering into an oil price war that is likely to be limited and tactical," Eurasia Group said in a note.
"The most likely outcome of this crisis is entrenchment into a painful process that lasts several weeks or months, until prices are low enough to ... some form of compromise on resumed OPEC+ production restraint."
Treasurer Josh Frydenberg has urged the consumer watchdog to ensure lower oil prices are passed on at Australia's petrol pumps.
Mr Frydenberg said he had spoken to Australian Competition and Consumer Commission chair Rod Sims on Monday about the organisation's role in monitoring prices at the bowser.
Petrol prices across Australia are expected to rise after the attack on oil facilities in Saudi Arabia.
"I wanted to re-emphasise to the ACCC the importance of holding the oil retailers to account in ensuring that Australians get the benefit from the lower oil prices," he told reporters in Canberra.
Mr Frydenberg said Mr Sims had assured him the ACCC would vigilantly monitor the situation.
Petrol is about to skyrocket to the highest it has been in 11 years in Sydney, just in time for the long weekend.
The watchdog will also call out energy companies that don't pass on price reductions.
Shadow treasurer Jim Chalmers said retailers should not be taking advantage of Australians doing it tough under current economic conditions.
"The petrol retailers in this country should not be taking us for mugs by hanging on to these substantial reductions in the fuel price," Mr Chalmers told reporters in Brisbane.
