Oil plunges to lowest level in 4 years on coronavirus impact; all you need to know about falling crude prices

Oil prices plummeted around 30 percent on Monday after Saudi Arabia slashed its official selling prices and set plans for a dramatic increase in crude production next month, starting a price war even as spread of the coronavirus erodes global demand growth. Prices fell by as much as a third following Saudi Arabia’s move after Russia balked at making a further steep output cut proposed by Organisation of the Petroleum Exporting Countries (OPEC) to stabilise oil markets hit by worry over the economic impact of the coronavirus. Brent crude futures were down $12.23, or 27 percent, at $33.04 a barrel, after earlier dropping to $31.02, their lowest since 12 February 2016. Brent futures are on track for their biggest daily decline since 17 January 1991, at the start of the first Gulf War. [caption id=“attachment_5728181” align=“alignleft” width=“380”] Representational image. Reuters[/caption] In January this year, the Brent crude was trading close to $72 per barrel. In two months, the crude price crashed more than 50 percent to $33 per barrel as the coronavirus epidemic is yet to be brought under control. US West Texas Intermediate (WTI) crude fell by $11.88, or 29 percent, to $29.40 a barrel, after touching $27.34, also the lowest since 12 February 2016. The US benchmark was potentially heading for its biggest decline on record, surpassing a 33 percent fall in January 1991. Disintegration of OPEC+ sparks price war The disintegration of the grouping called OPEC+ - made up of OPEC plus other producers including Russia - ends more than three years of cooperation on supporting the market, most recently to stabilise prices under threat from the economic impact of the coronavirus outbreak. Saudi Arabia plans to boost its crude output above 10 million barrels per day (bpd) in April after the current deal to curb production expires at the end of March, two sources told Reuters on Sunday. The world’s biggest oil exporter is attempting to punish Russia, the world’s second-largest producer, for not supporting the production cuts proposed last week by the OPEC. Saudi Arabia, Russia and other major producers last battled for market share like this between 2014 and 2016 to try to squeeze out production from the United States, which has grown to become the world’s biggest oil producer as flows from shale oil fields doubled its output over the last decade. “The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” Goldman Sachs said. Saudi Arabia over the weekend cut its official selling prices for April for all crude grades to all destinations by between $6 and $8 a barrel. Coronavirus outbreak continues, oil demand to decline China’s efforts to curtail the coronavirus outbreak has disrupted the world’s second-largest economy and curtailed shipments to the biggest oil importer. And the spread of the virus to other major economies such as Italy and South Korea and the growing number of cases in the United States have increased concerns that oil demand will slump this year. Goldman Sachs and other major banks such as Morgan Stanley have cut their demand growth forecasts, with Morgan Stanley predicting China will have zero demand growth in 2020. Goldman sees a contraction of 150,000 bpd in global demand. Goldman Sachs cut its forecast for Brent to $30 for the second and third quarters of 2020. Last month, oil prices edged higher as investors hoped the world’s biggest producers would cut output more while they largely shrugged off forecasts of slumping demand due to the coronavirus outbreak in top oil importer China. The OPEC had lowered its 2020 demand forecast for its crude by 200,000 bpd, prompting expectations the producer group and its allies, known as OPEC+, could cut output further. “The Russians have pretty much signaled that everyone is on board for OPEC+ delivering deeper production cuts,” said Edward Moya, senior market analyst at OANDA in New York. “Crude’s price action possibly suggests a firm bottom is in place. As long as the coronavirus does not show strong signs that the spreading of the virus is intensifying, WTI crude could make a run towards the mid-$50s.” In 2019, oil prices had risen more than 20 percent but there were no sharp spikes and crude futures barely sniffed $70 a barrel despite attacks on the world’s biggest oil producer, sanctions that crippled crude exports of two OPEC members and gigantic supply cuts from big oil producing countries. — With inputs from agencies