Foreign Desk Report
LONDON: Oil prices fell to a record low as the coronavirus continued to affect markets across the globe on Wednesday.
The WTI oil slumped by 12% on Wednesday as Brent prices also fell below 6%.WTI oil was priced at under $24 per barrel, as the coronavirus slashes global demand for crude.
WTI slid to $23.60 per barrel, while Brent North Sea oil touched a 2003 trough at $26.65 a barrel.
The new coronavirus has infected more than 200,000 globally since the beginning of the outbreak in December, according to media tally Wednesday.
Nearly 200,680 people around the world have been infected, with more than 8,000 deaths, as of 1300 GMT Wednesday.
The tallies are calculated using data collected by AFP offices from national authorities and information from the World Health Organization (WHO).
Oil prices fell for a third session on Wednesday with US crude futures tumbling to a 17-year low as the outlook for fuel demand darkened with travel and social lockdowns triggered by the coronavirus epidemic.
US crude was down $0.84, or 3.12%, at $26.11 a barrel, having earlier fallen to $25.83 a barrel, the lowest since May 2003.
Brent crude was trading down $0.37, or 1.29%, at $28.36 a barrel, after dropping to $28.05, the lowest since early 2016.
“The oil demand collapse from the spreading coronavirus looks increasingly sharp,” Goldman Sachs said in a note forecasting a fall in the price of Brent to as low as $20 a barrel in the second quarter, a level not seen since early 2002.
The bank also expects a demand contraction of 8 million barrels per day (bpd) by late March due to the pandemic and an annual decline in 2020 of 1.1 million bpd, which it said would be the most on record.
In efforts to support economies, the world’s richest nations prepared to unleash trillions of dollars of spending to lessen the fallout from the coronavirus outbreak, as well as imposing social restrictions not seen since World War Two.
The impact on oil demand is starting to show in official statistics with Japan’s trade bureau saying on Wednesday that crude imports into the world’s third-biggest economy fell 9% from a year earlier in February.
Virgin Australia became the latest airline to shut down its international network with the suspension of all overseas flights, while Prime Minister Scott Morrison warned that the situation could last six months or more.
Also in Australia, Oil Search joined other energy explorers in slashing expenditure and new activity to cope with the fall in prices.
Elsewhere, Iraq’s oil minister pleaded for an emergency meeting between members of the Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC producers to discuss immediate action to help balance the oil market.
A price war has broken out amid the evaporation of demand after the collapse of an agreement on withholding supply between OPEC and major producers including Russia, a grouping known as OPEC+.
From empty hotels to shuttered beauty salons, oil-dependent Saudi Arabia is bracing for a coronavirus-led economic slump on top of possible austerity measures as crude prices go into free fall.
Huge losses are expected after the Arab world’s biggest economy shut down cinemas, malls and restaurants, halted flights, suspended the year-round umrah pilgrimage and locked down eastern Qatif region — home to around 500,000 — in a bid to contain the deadly virus.
The top crude exporter also faces plummeting oil prices, which slipped below $30 a barrel this week for the first time in four years, on the back of sagging demand and a price war with Russia. The shock of this liquidity sapping cocktail of events has necessitated austerity measures which are likely to imperil grandiose diversification projects.
Adding to the chain of events are the recent arrests of King Salman’s brother and nephew, which triggered speculation of political instability amid the government’s public silence on the royal purge.
“It’s crisis time,” said a Saudi government employee, explaining why he had begun converting part of his salary into US dollars and gold coins.
“Everything is unpredictable and we should be ready for the worst.”
The central bank has shrugged off fears that plunging oil prices were straining the kingdom’s currency, pegged for decades to the US dollar.
A jeweller in Riyadh told AFP he had fielded a number of enquiries to convert “substantial amounts of cash” into gold bars and coins.
Many government workers fear cuts to state allowances are coming despite rising living costs.
Some Saudis also worry that recruitment in the public and private sectors will freeze, just as unemployment was already high.
Meanwhile, Saudi students are worried that government scholarships for overseas education will take a hit. The finance ministry has instructed government bodies to submit proposals to slash this year’s spending by 20 to 30 per cent, the economic consultancy Nasser Saidi and Associates said in a research note.
“This will likely take the shape of postponed projects and delays in awarding contracts” among other economising measures, the note said.
The kingdom is now preparing budget scenarios in which crude prices could drop as low as $12-$20 per barrel, according to the Energy Intelligence Group.
“Public confidence depends on government spending and oil sentiment — both are down,” said a consultant advising a Saudi ministry on a major project. “We don’t know if we will have our jobs tomorrow.” The once free-spending OPEC kingpin has instructed Saudi ministries that they need to account for “every penny” they spend, the consultant added. Saudi authorities did not respond to requests for comment.
Several Riyadh hotels — many of them empty amid falling tourist numbers — have been forced to send their staff on unpaid leave.
But providing some support, the health ministry has booked multiple Riyadh hotels to quarantine people after the coronavirus scare, according to several staff and guests who were forced to empty the properties at short notice.
The oil crash follows the crude exporter’s decision to hike production from April and offer the biggest price cuts in two decades, in retaliation for Russia’s refusal to tighten supply as the virus saps demand.
Saudi Arabia has shrugged off criticism that the move could bankrupt its oil-producing rivals, indicating it was no longer willing to play the role of “swing producer” that bears the burden of stabilising the markets.
“The days of Saudi Arabia absorbing oil market shocks on behalf of the global economy and other producers are probably over,” said Saudi expert and author Ali Shihabi.
“The energy game… is now a survival of the fittest.” The deep-pocketed kingdom, with fiscal reserves of around $500 billion, has reiterated it is an ultra low-cost producer of crude and can withstand low prices for years.
