- The COVID-19 outbreak has caused a sharp drop in global demand for oil and, as a result, its price on global markets has fallen significantly.
- US crude plunged below US$15 a barrel on Monday, as uncertainty in the market precipitates investors to pull back on spending.
- Analysts said there were concerns that its main storage facilities in the United States were filling up.
The eighth-biggest oil exporter in the world has seen a decline in energy consumption which metastasized in a global deal to cut oil production by more than 10%.
The US crude plunged below US$15 a barrel on Monday, as uncertainty in the market precipitates investors to pull back on spending. The Price plunge is said to be the lowest level for over two decades.
Analyst confirmed that West Texas Intermediate (WTI), the US benchmark, fell more than 19 percent to $14.73 a barrel in early Asian trade, before markets steadied and it clawed back some ground to $15.78 a barrel.
International benchmark Brent dropped 4.1 percent to $26.93 a barrel, before rising and stabilizing at $28.11.
Oil markets plummeted in recent weeks as measures to stem the coronavirus outbreak around the world has waned demand.
But prices have continued to fall heavily, with analysts saying the cuts will not be enough to make up for massive falls in demand caused by the pandemic.
WTI was hit particularly hard on Monday as analysts said there were concerns that its main storage facilities in the United States were filling up.
The oil price collapse is sending shockwaves throughout the entire industry, with oil majors slashing spending across the board, and explorers cutting as much as 13 percent of their drilling fleet as the crisis rages on. – Oil Price
Michael McCarthy, chief market strategist with CMC Markets, said the plunge in WTI "reflects a glut" at the US facility in Cushing, Oklahoma.
The benchmark has now "decoupled" from Brent "with the spread between the two reaching a decade high", he said in a note.
ANZ added in a note that "crude oil prices remained under pressure, as projections of weaker demand weigh on sentiment".
"Despite the OPEC+ alliance agreeing to an unprecedented cut in output, the physical market is awash with oil," it said, referring to the Organization of the Petroleum Exporting Countries and non-OPEC partners.
"Concern continues to mount that storage facilities in the US will run out of capacity."
Could supply growth accelerate to keep pace?
Since mid-March, the COVID-19 outbreak has caused a sharp drop in global demand for oil and, as a result, its price on global markets has fallen significantly. This was then exacerbated by a price war between Saudi Arabia and Russia, which brought the price down below $25 a barrel in early April.
The global economic recovery has been muted, and a double-dip recession remains possible.
But that dour prospect shouldn’t make executives sanguine about the risk of another oil shock. Emerging markets are still in the midst of a historic transition toward greater energy consumption. When global economic performance becomes more robust, oil demand is likely to grow faster than supply capacity can. As that happens, at some point before too long supply and demand could collide—gently or ferociously.