Crude price worsens on Covid concerns; reaches closer to $20 per barrel

Current market oversupplied on shrinking demand; creating situation of free fall

Agency Report | New Delhi | 30 March, 2020 | 11:30 PM

Crude oil prices continue its free fall with the WTI crude of US falling below the $20 per barrel mark briefly and benchmark Brent crude price touching its 18-year-low on fears that coronavirus-related shutdowns may continue for few more months, resulting in a further decline in fuel demand.

Currently, the West Texas Intermediate (WTI) crude is trading at $20.40 per barrel, lower by nearly 5.2 per cent from its previous close. Earlier in the session, WTI fell as low as $19.92.

Brent crude oil is at $22.84 a barrel, falling 8.4 per cent from its previous closing level after earlier dropping to $22.58, the lowest since November 2002.

The persistent fall can be attributed to both rise in supplies and declining demand. The coronavirus pandemic has almost brought the global travel industry to a halt, limiting demand for the commodity. Analysts now expect demand to slump considerably during the coming months which could put crude prices closer to $15 mark soon as the pandemic is expected to continue for a longer period.

Further, the surge in supply by Saudi Arabia, after the OPEC’s talks on deeper production cut with Russia failed, has added to the pressure on oil prices. The current market is oversupplied on shrinking demand, creating a situation of free fall for crude.

Soon after the talks failed earlier this month, crude had fallen by more than 25 per cent, the largest fall since the 1991 Gulf War, to $34 per barrel on March 9. During the week, crude again lost about 10 per cent to touch a new low of $30 a barrel.

The price of oil has now reached a point that it is increasingly becoming difficult for higher cost producers to remain in operation and are rather looking at declaring bankruptcy. A lot of US shale producers are in deep trouble and analysts expect that low oil price for few more months will result in a spate of bankruptcies in US.

With world demand now forecast to plunge 15 million or 20 million barrels per day, a 20 per cent drop from last year, analysts say massive production cuts will be needed beyond just the Organization of the Petroleum Exporting Countries (OPEC). So if Russia and other producers in South America and Africa do not sit together and decide on production cuts, the oil market is headed for a further blood bath.

Global markets have been on a bear run, including the financial markets for the past few weeks owing to the concerns of a significant impairing of the world economy due to the coronavirus crisis. (IANS)