Crude Oil Slumps; U.S. WTI Falls Below $20/Bbl on Longer Demand Dip

By Peter Nurse    

Investing.com - Oil markets traded sharply lower Monday, hitting multi-year lows, on growing fears that the global coronavirus shutdown could last months, pushing back the timeline for a recovery in demand to end an unprecedented glut. .

AT 9 AM ET (1300 GMT), U.S. crude futures traded 4.4% lower at $20.55 a barrel, having dropped below $20 earlier Monday, while the international benchmark Brent contract fell 5.4% to $26.46, hitting the lowest level in 17 years.

Late Sunday President Donald Trump extended the current guidance on social distancing to the end of April, after the U.S.’s top infectious disease expert said deaths there may reach 200,000. Trump had earlier said he wanted the economy to return to near normality by Easter.

Consumption will drop by 26 million barrels, or 25%, this week as social-distancing measures to contain the coronavirus now impact 92% of global GDP, Goldman Sachs (NYSE:GS) analysts including Jeff Currie and Damien Courvalin said in a note. 

There’s been at least 900,000 barrels a day of announced shut-ins at the wellhead, with the true number likely higher and growing by the hour, they added, with landlocked crude production in the U.S., Russia and Canada the most vulnerable.

An illustration of the impact of the drop in demand was shown by Baker Hughes reporting Friday that the number of active U.S. rigs drilling for oil dropped by 40 to 624 that week. That followed a decline of 19 oil rigs the week before. 

And while demand is plummeting, the market is awash with supply after a pact between the Organization of the Petroleum Exporting Countries and other producers, known as OPEC+, to curb oil production to support prices fell apart, caused by a spat between Saudi Arabia and Russia.

There have been few signs of the two sides backing down since. An official from Saudi Arabia's energy ministry said on Friday the kingdom was not in talks with Russia to balance oil markets despite rising pressure from Washington to stop the rout, while Russia’s Deputy Energy Minister Pavel Sorokin said oil at $25 a barrel is unpleasant, but not a catastrophe for Moscow.

“The market has flipped from backwardation to deep contango with time spreads reaching levels wider than those during the 2008 global financial crisis,” said analysts at the Oxford Institute for Energy Studies.

The analysts add, according to their model,  “the supply-demand imbalance is projected to reach 5.7 mb/d in 2020 and 3.3 mb/d in 2021 which will further deepen the contango as inventories continue to build and traders increasingly resort to floating storage.”

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