A floorhand works on an oil rig in the Bakken shale formation outside Watford City, North Dakota.
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Oil plummeted to a nearly 18-year low on Wednesday as the coronavirus outbreak continues to sap demand for crude, and as rising fears of a global recession lead to fears of longer-term demand destruction.
U.S. West Texas Intermediate crude fell 9%, or $2.42, to trade at $24.49 per barrel. WTI traded as low as $24.42, its lowest level since 2002. International benchmark Brent crude shed 4.6%, or $1.33, to trade at $27.36 per barrel.
Oil is getting hit on both the supply and demand side. A slowdown in worldwide travel and business activity is weighing on demand, just as powerhouse producers Saudi Arabia and Russia prepare to ramp up production on April 1, which is when the OPEC+ production cuts currently in place expire.
“With each day there seems to be yet another trapdoor lying beneath oil prices, and we expect to see prices continue to roil until a cost equilibrium is reached and production is shut in,” said Rystad Energy analyst Louise Dickson.
“This is the most dismal oil demand picture we have witnessed in a long time with a simultaneous collapse in jet fuel, gasoline, shipping fuel, petrochemicals, and oil used for power generation,” she added.
WTI and Brent are both on pace for their worst month ever.
On Tuesday, Goldman Sachs slashed its oil forecast for the second quarter, and now sees both WTI and Brent averaging $20 per barrel. The firm believes that oil use has fallen by eight million barrels per day. ”Demand losses across the complex are now unprecedented,” said Goldman’s global head of commodities research Jeffrey Currie.
Unlike prior times of economic turmoil, including the financial crisis in 2008, the long-term impact of coronavirus is still very much unknown. With more and more market watchers saying a recession looks likely, oil prices could have much further to fall.
“Looking ahead, the path of least resistance is decidedly lower right now and the lower-for-longer dynamic appears to be one that is here to stay for a while given the clearly bearish fundamentals pointing to a likely longstanding surplus in the global oil markets,” said Tom Essaye, co-founder of The Sevens Report.
– CNBC’s Michael Bloom contributed reporting.
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