Oil briefly traded below its lowest settlement price in almost 17 years as the COVID-19 pandemic threatens to bring the global economy to a standstill, battering demand just as supply explodes.
Futures in New York fell as much as 3.1 percent to US$26.11 a barrel, which would be the lowest close since May 2003 if prices settle at that level. The last time crude traded near this level was when SARS hit Asia.
Oil clawed back some of its initial losses, but remains about 17 percent weaker this week in the most volatile trading on record.
While policymakers around the world take unprecedented steps to shore up their economies from the fallout of the virus, the meltdown in crude demand and concurrent supply free-for-all by the world’s biggest producers continue to pull prices down.
“I don’t think we have hit peak demand devastation yet,” AxiCorp Financial Services Pty’s Asia Pacific market chief strategist Stephen Innes said.
Innes predicts oil might fall to US$18 to US$20 a barrel.
“If cases exponentially increase, especially in the US, it’s going to spook the hell out of oil traders,” he said.
The market is finding little succor in global efforts to stem the economic fallout. The US Federal Reserve on Tuesday announced the restart of a financial crisis-era program in an effort to stem the economic effects of the virus.
While US stocks rebounded from the biggest rout since 1987 on the plan, oil continued its slide as Saudi Arabia signaled its intention to ship a record 10 million barrels a day next month.
West Texas Intermediate for next month delivery dropped US$0.71 to US$26.24 a barrel on the New York Mercantile Exchange as of 8:04am in London. Brent crude fell US$0.35 to US$28.38 on the ICE Futures Europe Exchange after slumping 4.4 percent on Tuesday.
US gasoline prices yesterday recovered some ground after the biggest daily drop on Monday since 2005. Fuel was up 1.4 percent at US$0.72 a gallon.
The supply and demand shocks have hammered Wall Street’s outlook for oil. Goldman Sachs Group Inc said consumption is down by 8 million barrels a day and cut its Brent forecast for the second quarter to US$20 a barrel.
Standard Chartered PLC predicted the low for the global benchmark crude would likely be well below US$20 next quarter, while Mizuho Securities Co warned prices could go negative as Russia and Saudi Arabia flood the market.
The rout amid ruthless competition between exporters has forced Iraq to urge OPEC and its allies to regroup for negotiations. Before OPEC+ talks collapsed earlier this month, Iraq had routinely disregarded the supply cutbacks it had promised.
Now the producer has asked the cartel to hold a meeting to consider steps for rebalancing the global oil market as a massive glut emerges, a delegate said.
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