Oil prices slumped anew on Friday with Brent North Sea crude plumbing a 17-year low owing to massive oversupply as the coronavirus crisis paralyses global demand.
Around 1435 GMT, Brent for May delivery was down 7.33 percent from Thursday, at USD 24.41 a barrel. West Texas Intermediate fell 5.97 percent to USD 21.25.
Oil has tanked in recent weeks on the back of collapsing demand, as COVID-19 slams the brakes on economic activity and the world’s appetite for energy. Crude futures spiralled even lower this month after a fierce price war erupted between Riyadh and Moscow.
“The coronavirus pandemic is reducing oil demand,” wrote analysts at the Wood Mackenzie research consultancy in a note to clients.
“The OPEC+ production restraint agreement fell apart on 6 March and Saudi Arabia is rapidly increasing supply.
“The result: Brent crude has plunged,” they added.
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Until recently, the Organization of the Petroleum Exporting Countries (OPEC) and Russia had cooperated closely since 2016 to curb production, support prices and protect their precious revenues.
That all changed this month when Saudi Arabia launched a price war with Moscow, after OPEC and non-member Russia failed to clinch an output-cutting deal to curb the market impact of the deadly COVID-19 outbreak.
The perfect storm has sent oil prices collapsing to their lowest levels in almost two decades, while also stretching global crude storage capacity.
“With Saudi Arabia attempting to flood the oil market by ramping up production to counter Russia, oil prices have halved this month … prompting countries to stockpile under the low prices,” said Sun Global Investments head Mihir Kapadia.
“Oil stockpiles around the world climbed up as major refineries in core markets such as China were shutdown due to the pandemic.
“According to industry reports oil storage levels globally have already reached 75 percent of capacity, and continued stockpiling under closed demand would crash the prices to USD 10 in the coming months unless industrial activity restarts.
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With 3 billion people in lockdown, global oil requirements could drop by 20%, International Energy Agency head Fatih Birol said as he called on major producers such as Saudi Arabia to help to stabilise oil markets.
The calls may not be enough to bring the market back into balance.
“We have our doubts about whether Saudi Arabia will allow itself to be persuaded so easily to return from the path of revenge that it only recently embarked upon,” said Commerzbank analyst Eugen Weinberg, referring to the price war being waged between Russia and Saudi Arabia.
The Group of 20 major economies on Thursday pledged to inject more than $5 trillion into the global economy to limit job and income losses from the coronavirus and “do whatever it takes to overcome the pandemic”.
Leaders of the US House of Representatives are determined to pass a $2.2 trillion coronavirus relief bill by Saturday at the latest, hoping to provide quick help as deaths mount and the economy reels.
Mainland China reported its first locally transmitted coronavirus case in three days and 54 new imported cases as Beijing ordered airlines to implement sharp reductions in international flights, for fear travellers could reignite the outbreak.
As global oil demand plummets, Saudi Arabia is struggling to find customers for its extra oil, undermining its bid to seize market share by expanding production.
“It does not seem as though there is anything the Saudis or the broader OPEC+ group can do to push the market significantly higher,” said ING analyst Warren Patterson.
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“The demand destruction we are seeing does mean the level of (production) cuts that would be needed by the group would be just too much to stomach,” he said.
Russian Deputy Energy Minister Pavel Sorokin said the coronavirus outbreak has dented global oil demand by 15 million to 20 million barrels per day (bpd).
Oil and gas research group JBC Energy said it had “drastically” reduced its oil demand forecast for 2020, expecting a decline of more than 7.4 million bpd on average.
