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LONDON — Brent crude prices extended falls on Monday with demand sliding as travel and industrial activity contracted across the globe in a bid to stem the spread of coronavirus.
Brent crude futures had fallen US$1.54, or 5.7 per cent, to US$25.44 a barrel by 1004 GMT. West Texas Intermediate (WTI) crude futures were down 36 cents, or 1.6 per cent, at US$22.27 a barrel, having fallen 2 percentage points more than Brent this year.
The demand destruction caused by the coronavirus pandemic comes as the oil market contends with the unexpected price war that erupted between producers Russia and Saudi Arabia, effectively ending an OPEC+ alliance and flooding the market with barrels.
The six-month spread of Brent futures hit its steepest since 2009 at a discount of more than US$9, a contango structure which reflects the current oversupply.
Oil prices have posted four straight weeks of losses and dropped more than 60 per cent since the start of the year. Prices of everything from coal to copper have also been hit by the coronavirus crisis, while bond and stock markets are in rarely charted territory.
The Tokyo Olympics became the latest potential casualty of the pandemic as Japan and the games organizers’ raised the prospect of a delay from the summer, while Canada and Australia announced they would not send athletes to the event.
The coronavirus, which has infected more than 325,000 and killed more then 14,000 worldwide, has disrupted business, travel and daily life.
Many oil companies have rushed to cut spending and shareholder payouts while refiners worldwide are slashing production or considering cuts as demand for fuel evaporates.
Almost a third of Americans are now under orders to stay at home as states take extra measures to stem the rising numbers of cases in the world’s biggest economy, while in New Zealand Prime Minister Jacinda Adern said all non-essential services and business are to be shut down.
Demand is expected to fall by more than 10 million barrels per day (bpd), or about 10 per cent of daily global crude consumption, said Giovanni Serio, head of research at Vitol, the world’s biggest oil trader.
Goldman Sachs estimated the demand loss could total 8 million bpd. UBS forecast an annual fall in global demand of 5-10 million barrels per day in March.
“With OPEC+ currently unwilling to get back together and demand losses becoming visible, oil prices likely need to trade lower into the cash cost curve to trigger production shut-ins,” UBS said.
© Thomson Reuters 2020
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