US oil prices tumbled to their lowest level in more than two decades as the global demand hit from the coronavirus pandemic raised concerns the world is becoming awash with crude that it does not have enough room to store. Analysts said the latest fall in prices, which came ahead of the imminent expiry of a heavily traded futures contract, could put fresh pressure on producers to further reduce supply.
As markets opened in Europe on Monday, West Texas Intermediate – the US oil benchmark – was down 17.9 per cent at $14.99 a barrel, its lowest level since 1999. It had fallen as low as $14-47 in Asian trade. Shares in oil majors were under pressure in an otherwise positive start to the day for European stocks, with London-listed Royal Dutch Shell and BP down 1 per cent, while France’s Total slid 2.2 per cent.
But major equities indices opened higher as investors continued to focus on a more positive narrative, with infection rates slowing and a handful of European countries beginning to ease their lockdowns. The continent-wide Stoxx 600 added 0.2 per cent, the Dax 30 in Frankfurt was up 0-4 per cent and London’s FTSE 100 climbed 0.3 per cent.
The oil industry is facing “the bleakest oil macro outlook since at least the late 1990s and perhaps ever”, said Jefferies analyst Jason Gammel, who cut his forecast for WTI prices in the second quarter to $19 a barrel.
Crude prices have plummeted this year on the possibility that the coronavirus outbreak will cause a deep global recession. The number of Covid-19 infections worldwide topped 2-4m as of Monday, according to Johns Hopkins data, with more than 165,000 dead. Over the weekend, US president Donald Trump sparred with state governors over plans to reopen the world’s largest economy.
The latest developments “painted a grim picture of a world still firmly in the grip of the coronavirus crisis, amplifying worries about sinking oil demand”, said Vandana Hari, founder of Vanda Insights, a Singapore-based energy research firm. The deepening fall in oil prices has come despite an Opec-backed deal to cut roughly 10 per cent of global crude supply. Reductions of varying magnitude are planned to run until April 2022 as part of efforts to stabilise prices.
With “oil storage capacity on and offshore close to maximum capacity, one can be sure that the alarm bells are ringing, which means a next Opec+ round is [around] the corner,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.