Oil prices plunged on Wednesday, with U.S. crude futures hitting an 18-year low, as governments worldwide accelerated lockdowns to counter the coronavirus pandemic.
Oil futures have lost more than half their value in the past 10 days as schools have closed, businesses have shuttered and governments worldwide have urged residents to limit gatherings. The decline in the U.S. market in the last 10 days is the largest ever for the contract since it was introduced in 1983.
“The market is cascading. It’s trying to search for a bottom and it doesn’t seem able to find one,” said Gene McGillian, vice president of research at Tradition Energy in Stamford, Connecticut. “There are fears of an economic collapse because of what this virus represents, globally.”
Global oil demand by the end of March could fall as much as 8 million to 9 million barrels per day (bpd), Goldman Sachs said.
Investors broadly fled risky assets again on Wednesday. U.S. stocks slumped, with the S&P 500 dropping 7 per cent, while copper futures fell 6.9 per cent.
U.S. crude fell $6.58, or 24.4 per cent, to settle at $20.37 a barrel. U.S. crude futures have lost 56 per cent over last 10 days.
Brent crude settled down $3.85, or 13.4 per cent, at $24.88 a barrel after dropping as low as $24.52, its weakest since 2003.
The oil market was already reeling after Saudi Arabia decided this month to dramatically increase supply since it and Russia could not agree to cut output in anticipation of weaker demand.
Saudi Arabia has ignored entreaties to act to balance the market, reiterating plans to maintain production at more than 12 million barrels per day, which would be a record.
U.S. crude futures fell even after weekly U.S. data showed notable declines in gasoline and diesel inventories. Crude stocks rose by 2 million barrels, while gasoline and distillate inventories fell by 6.2 million and 2.9 million barrels, respectively.
Goldman forecast a fall in Brent prices to as low as $20 in the second quarter. Rystad Energy projects a year-on-year decline in demand of 2.8 million bpd, or 2.8 per cent, this year.
PHYSICAL MARKETS FREEZE
Analysts noted that the sharp fall in U.S. crude prices when compared with the international benchmark Brent reflected an increasingly dire outlook in physical markets. Traders believe the increased activity from Saudi Arabia will limit U.S. exports in coming weeks, and they anticipate storage filling rapidly as well as refiners cut runs, boxing in U.S. producers.
“Physical markets are virtually bidless,” said Scott Shelton, energy salesperson from United ICAP. “It tells me prices are going lower until either OPEC comes back to the table, or the U.S. E&Ps start announcing cuts to production.”
Iraq’s oil minister pleaded for an emergency meeting between members of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers to discuss immediate action to support the market.
The Kremlin said that Russia would like to see the oil price higher. Saudi Arabia’s energy ministry, however, said it had directed national oil company Aramco to continue to supply crude oil at a record high 12.3 million bpd over the coming months.
“With the Saudis and Russians in a fierce battle for market share, it is difficult to see any quick resolution on this front,” ING said of Iraq’s request.
Japan’s trade bureau said crude imports into the world’s third-biggest economy in February were down 9 per cent from a year earlier.
The world’s richest nations are preparing to unleash trillions of dollars of spending to reduce the economic fallout from the coronavirus, as businesses curtail operations in an effort to keep most workers at home.
Honda Motor Co said on Wednesday it is halting production in North America for six days because of the anticipated decline in auto sales and will reduce production by about 40,000 vehicles.