Brent crude on Monday plunged to its cheapest level in almost 18 years. US crude briefly sank below $20 a barrel. Prospect grew that the global shutdown as a result of coronavirus pandemic could last for months.
Due to the pandemic, at least a 20 percent drop expected in fuel demand worldwide. As demand falls, producers and shippers have also been scrambling to lock oil up in storage with Russia and Saudi Arabia set to flood the market next month with oil.
Hitting the lowest close since November 2002, Brent futures fell $2.17 (8.7 percent) to settle at $22.76 a barrel. Hitting the lowest close since February 2002, US WTI crude slipped $1.42 (6.6 percent) to $20.09. Trafigura said oil demand could plummet by more than 30 million bpd in April. The amount is nearly 33 percent of daily fuel consumption.
After the collapse of a three-year deal to limit supply between the OPEC and other producers led by Russia, Saudi Arabia-Russia price war erupted earlier this month. The outlook so far has not been changed despite negotiations between the two producers and the US. From May, the kingdom plans to increase oil exports to 10.6 million bpd.
For five straight weeks, major crude benchmarks have recorded losses. The oil price is now so low. For many oil firms, it is becoming unprofitable to remain active. Especially since storage capacity is almost full, higher-cost producers will have no choice but to shut production.
