Oil futures extended their plunge Wednesday, sending U.S. prices to their lowest finish since 2002, as countries continued to lock down to slow the spread of the COVID-19 pandemic, while Saudi Arabia and Russia remain on track to flood the world with crude in a global price war. “This is unprecedented, and when we add in the OPEC increase in output we have a greater surplus of production relative to consumption greater than anytime in history,” said James Williams, energy economist at WTRG Economics. West Texas Intermediate crude for April delivery on the New York Mercantile Exchange fell $6.58, or more than 24%, to settle at $20.37 a barrel, with the front-month contract logging the lowest finish since Feb. 20, 2002, according to Dow Jones Market Data. May Brent crude dropped $3.85, or over 13%, at $24.88, with prices ending at their lowest since May 8, 2003. Adjusted for inflation, front-month Nymex WTI oil trades around its lowest levels since March 1999, according to Dow Jones Market Data.
“Oil is by far one of the biggest casualties from the novel coronavirus outbreak,” said Lukman Otunuga, senior research analyst at FXTM. “WTI crude and Brent have both depreciated a staggering 60% since the start of 2020 and could extend losses as the pandemic darkens the outlook for fuel demand.” “To rub salt into the burning wound, the raging price war between Saudi Arabia and Russia is fueling oversupply concerns,” he told MarketWatch, adding that WTI oil may test $20 “if nothing changes.”
The Trump administration has signaled support for a stimulus package of $1 trillion or more, including direct payments to individuals and rescue packages for industries. The Federal Reserve, after moving to cut interest rates to nearly zero on Sunday and taking additional stimulus measures, on Tuesday unveiled a commercial paper facility aimed at providing a liquidity backstop to the market. Later in the day it also unveiled a Primary Dealer Credit Facility. “Growing hopes for fiscal stimulus are so far being squashed by near-term demand worries. The European Union confirmed restrictions on travel, while players in the European automotive and aerospace industries were heard winding down production, a development that could spell further trouble for petrochemical players,” wrote analysts at Vienna-based JBC Energy, in a note.
Meanwhile, following a failed attempt to reach an agreement to further curb oil production, current production cuts by the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, are set to expire at the end of this month. Unless OPEC backs off, prices should reach $20 [and] could go even lower. The low price will not result in increased demand until the world economies begin to recover,” Williams told MarketWatch.
Oil prices lost more ground after data from the Energy Information Administration Wednesday revealed an 8th consecutive weekly rise in US Crude Supplies. U.S. crude supplies rose by 2 million barrels for the week ended March 13, according to the EIA. Analysts polled by S&P Global Platts expected the data to show a rise of 2.6 million barrels. The American Petroleum Institute on Tuesday reported a fall of 421,000 barrels. The EIA data showed supply declines of 6.2 million barrels for gasoline and 2.9 million barrels for distillates. The S&P Global Platts survey had shown expectations for supply declines of 3.8 million barrels for gasoline and 3.2 million barrels for distillates.