Crude Oil Slumps to New Multi-Year Low on Recession Fears

By Peter Nurse    

Investing.com - Oil markets continued to head south Wednesday, with U.S. crude futures tumbling to a near 18-year low as travel and social lockdowns sparked by the coronavirus epidemic knocked the outlook for demand.

AT 9:00 AM ET (1300 GMT), U.S. crude futures traded 8.7% lower at $24.94 a barrel, its lowest since May 2002. The international benchmark Brent contract fell 5.2% to $27.23, its lowest since May 2003.

The battleground against the virus has moved from Asia to Europe and America. Deaths have continued to soar in Italy and Spain, prompting the European Union to ban travellers from outside the bloc for 30 days in an unprecedented move to seal its borders. Travel within Europe has also been severely limited by public health measures closing most non-essential business activity.

The Trump administration has recommended the closure of restaurants, bars and schools while assembling a $1.2 trillion stimulus plan that would shortly send cash to Americans, and backstop airlines and other companies. However, even those financial measures look unlikely to stop a near-term collapse in physical demand for fuel.

U.S. Gasoline RBOB Futures remained close to their all-time lows at 70.36c a gallon, down 1.1% on the day.

Some are looking to China, where this coronavirus started, for the best guide to the potential hit to demand. 

China’s economy will grow 3.4% this year, according to the median of 12 forecasts since Monday, compiled by Bloomberg. That is the lowest since a contraction in 1976 - the final year of the Cultural Revolution which wrecked the economy and society - and the year Mao Zedong died.

Data out Monday showed an across-the-board slump in manufacturing, retail sales and investment in January and February, with all the numbers hitting historic lows. 

Meanwhile, Saudi Arabia has ordered state-owned Aramco (SE:2222) to keep supply at a record of 12.3 million barrels per day over "the coming months", suggesting Riyadh is determined not to back down in the price war with Russia.

“The pickup in oil supply from April following the breakdown of OPEC+ talks does mean that these weak prices are likely to linger for quite a while longer,” said ING, in a research note.

“Lower prices are clearly going to hurt oil exporting countries, and the Iraqis have already requested that OPEC+ hold an urgent meeting. However, with the Saudis and Russians in a fierce battle for market share, it is difficult to see any quick resolution on this front,” ING added.

Analysts at Rystad Energy estimate that up to 3 million barrels a day extra could hit the global market in April, if Libya can agree a ceasefire in its civil war. Around 1 million b/d of Libyan capacity is currently shut in due to hostilities.

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