Foreign Desk Report
SINGAPORE: Oil prices fell below $30 per barrel on Tuesday, extending losses after shedding a tenth of their value on Monday, as the coronavirus pandemic hit demand while Saudi Arabia raised output to a record as it battles with Russia for market share.
Brent crude was 0.5% lower at $29.91 a barrel having earlier risen as high as $31.25 per barrel. US West Texas Intermediate (WTI) crude reversed most of its earlier 4.7% gains to stand at $29.04 a barrel. US President Donald Trump warned that the United States may be heading into recession as economic activity across the globe slowed and stocks tumbled.
The United States has said it will take advantage of low oil prices to fill its Strategic Petroleum Reserve (SPR), and other countries and companies are planning similar measures to fill storage tanks.
“But those storage facilities are rapidly filling,” said Stephen Innes, Chief Markets Strategist at AxiCorp.
“If storage does fill, quashing that demand, oil prices are sure to collapse further, and the global markets will then have to hope that the dispute between Saudi Arabia and Russia is resolved before we reach that point of no return,” Innes said.
Amid heavy demand loss from the global spread of the virus that causes COVID-19, Saudi Arabia and Russia started a price war after failing to agree to extend their pact to cut output to support the market. Saudi Aramco has said it would likely carry over its planned higher oil output for April into May, and that it was “very comfortable” with an oil price of $30 a barrel.
“Much focus is also falling on the Russians and Saudis, with no expectations for either side to blink unless oil collapses towards the $15 region… If we see oil falls below the $20 level, the Saudis may decide to come back to the negotiating table, however maybe just with OPEC and not the Russians,” said Edward Moya of Oanda. Countries including the United States and Canada and nations in Europe and Asia in the meantime are taking unprecedented steps to contain the virus, severely crippling demand for crude and refined products including gasoline and jet fuel.
Gasoline refining margins in the United States, the world’s largest consumer of the motor fuel, plunged around 95% on Monday, briefly turning negative, as people stayed off the roads.
In Asia, margins for transportation fuels had also plunged after more countries imposed travel restrictions and curbed domestic movement as part of measures to slow the spread of the coronavirus.
The oil market is heading for the largest ever crude glut in the first half of 2020, which could be two to nearly four times bigger than the biggest surplus recorded so far, IHS Markit says, as quoted by Bloomberg.
The glut in H1 2020 could reach between 800 million barrels and a staggering 1.3 billion barrels, more than two and up to nearly four times larger than the previous biggest glut of 360 million barrels in late 2015-early 2016, according to IHS Markit.
