On Monday, oil fell to an 18-year low as the coronavirus spread across the globe and slowed transportation and reduced demand on the commodity. Meanwhile, OPEC+ nations, including Saudi Arabia, planned to ramp crude production.
Most of the world has initiated lockdowns until the pandemic is under control. This has had a profound effect on gasoline and jet fuel demand since the population isn’t traveling and business for many has come to a screeching halt.
Overall, oil has fallen more than 6 percent. U.S. West Texas Intermediate (WTI) crude slid $1.42, or 6.6 percent and settled at $20.09. This marks its lowest since February 2002. Overall, WTI stock has slid 55 percent in March. Earlier in the day, oil traded at 9 percent less but gained some of its losses. Brent crude also fell 8.7 percent and settled at $22.76 a barrel, another low not seen since 2002.
OPEC+ production cuts are expiring and on April 1, the 14 nation intergovernmental organization will be able to produce unlimited oil. Saudi Arabia has said it plans to pump full speed ahead.
Both supply and demand have been greatly impacted by the coronavirus. However, analysts project that crude may not have hit rock bottom yet.
John Freeman, an analyst for Raymond James, noted: “With the effects of COVID-19 continuing to weigh on global demand, it’s likely global crude storage capacity maxes out in 2Q20, creating a nightmarish scenario and the possibility that crude could test the $10/bbl threshold.”
As if things weren’t already bleak, Bank of America downgraded its forecast on oil prices Monday and said it expects “temporarily trading in the teens in the coming weeks.” According to Bank of America analyst, Francisco Blanch, “On a quarterly basis, we expect to see the steepest decline in global oil consumption ever recorded.”
The sudden oil decline has also prompted energy companies to slash spending. Production and exploration companies in the U.S. have been hit the hardest. Struggling to break even, analysts say that consolidations and bankruptcies are likely.
Bjornar Tonhaugen, head of oil from Rystad Energy, said, “The oil market supply chains are broken due to the unbelievably large losses in oil demand, forcing all available alternatives of supply chain adjustments to take place during April and May: Onshore product storage surge, refinery-run rate cuts globally, massive increases in floating storage deals and upstream supply shut-ins.” Tonhaugen’s company expects that oil demand could fall by 16 million barrels per day or more in the coming month.