The oil prices have never been this low for the past 17years. 2020 has recorded the lowest oil prices. The demand has declined with coronavirus pandemic. Despite so the unrelenting price war between Saudi Arabia and Russia seems to be at its peak. Saudi Arabia engaged in all out-price war by increasing the production of its crude oil and slashing prices. Adding another stressor to the financial market.
Brent Crude Oil prices plunge amid coronavirus outbreak
On Monday Morning Brent crude prices hit $23.03 a barrel. The lowest price it has recorded since 15th November 2002. As the price plunged, it recorded some losses. However, Brent crude was last 5.86% lower at $23.47 a barrel.
US West Texas Intermediate
The plummeted drop in oil prices is likely to impact negatively on Texas oil and gas industry. Depending on how long the price war and corona pandemic lasts. West Texas oil price declined from $20 to $19.90 per barrel. This follows an oversupply of crude oil by Saudi Arabia while Russia maintained its production. West Texas Intermediate was last 4.51% lower at $20.54 a barrel.
These reductions in oil prices result from unrelentless competition in oil prices between Saudi and Russia. The two countries have contributed to the global oil clashes as Saudi maximizes its output and slashes oil prices. Despite Washington’s efforts to intervene, there are no signs of unity between the two countries.
The fallout between OPEC and non-OPEC leaders
In early March, the alliance between OPEC and non-OPEC allies hit a brick wall when Russia failed to agree to OPEC’s desire for additional production cuts of 1.5 million. The deal was to start in April and run until the end of the year. Saudi Arabia ended its alliance and set out to implement its terms on oil output and prices. It intends to flood the global market with crude oil, offered at discounted prices to its buyers.
This will impact on investment opportunities and contribute to bankruptcies in the USA it will also affect shale production.
“We think oil supply from the US, Canada, and China are the most likely to be curtailed at low prices.US oil production cuts are expected to be the most significant,” Vivek Dhar of Commonwealth Bank of Australia said in a note on Monday. “The plunge in US oils rigs last week signals the pressure facing the US shale oil sector.”
Lockdown could drop global oil requirements
With the global pandemic, countries have gone into lockdown. Borders are being closed and travel bans reinstated. About three billion people are behind closed doors. Flights across the globe are canceled and, airlines grounding their flights. All these paralyzing the global economy. There is a high supply of fuel but low demand. According to Fatih Birol, International Energy Agency director, the world is experiencing high deflation rates. WTI dropped from USD 60 to USD20. As of now, refiners have reduced their appetite for crude oil because of the deepening pandemic. Leaving the oil market flooded with crude oil.
During the lockdown, storage capacity may soon run out. The rate at which they are filling is fast.