Oil prices plunged below $24 a barrel for the first time in almost 18 years after Saudi Arabia doubled down in its price war with Russia, vowing to keep production at a record high “over the coming months.”
For the last 10 days, Riyadh has issued nearly daily statements raising the stakes in its shock-and-awe battle with Moscow, first announcing record price discounts, then unprecedented production, and is now vowing to pump flat out for months to come. The energy market has taken these as a green light to sell, sending prices down about 45% since a failed OPEC+ meeting this month.
“Saudi Arabia has decided to flood the market with oil as it pushes for market share by ramping up production to maximum levels,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London.
Riyadh appears to be heading to a Darwinian survival of the fittest for the energy industry, in which the highest cost producers, including U.S. shale companies and others like Brazil’s offshore fields, will suffer enormously. The Saudi Ministry of Energy “directed Saudi Aramco to continue to supply crude oil at a level of 12.3 million barrels a day over the coming months,” according to a statement.
Russia so far has suggested it’s prepared to absorb the pain, although for the first time on Wednesday the Kremlin said it wouldprefer higher prices. Yet, few in the oil market see either Moscow or Riyadh taking a u-turn.
“We see no easy way for Saudi Arabia or Russia to back down from their current positions,” Sen said in a note to clients.
West Texas Intermediate futures in New York fell as much as 12% to $23.60 a barrel, the lowest since June 2002. Oil is now cheaper than anytime during the global financial crisis, when the world economy largely came to halt for a few days. Demand is in free fall, with some traders saying it could be dropping by more than 10% compared to last year.
In London, Brent futures plunged as much as 7.2% to $26.66 a barrel, the lowest since 2003. Gasoline, diesel and jet-fuel wholesale prices also fell.
In the physical market, the pain is enormous. The Mexican oil basket, which measures the price the country secures selling its crude overseas, fell to $18.78 a barrel on Monday. In Canada, the benchmark crude price for tar-sands producers, known as Western Canadian Select, plunged to $9.19 a barrel.
Saudi Arabia is “really testing everybody and building negotiating power,” said Per Magnus Nysveen, head of analysis at Rystad Energy A/S. “They will try and be as strong as possible and they’re also killing U.S. shale.”
The market is finding little succor from global efforts to stem the economic fallout of the fast spreading coronavirus. The U.S. Federal Reserve on Tuesdayannounced the restart of a financial crisis-era program to stem the impact from the virus, butequities andbonds are continuing to drop.
The supply and demand shocks have hammered Wall Street’s outlook for oil. Goldman Sachs Group Inc. said consumption is down by 8 million barrels a day and cut itsBrent forecast for the second quarter to $20 a barrel. Standard Chartered Plc predicted the low for the benchmark crude will probably be well $20/Bbl in 2Q: Stanchart” class=”terminal-news-story” target=”_blank”>below that level next quarter, while Mizuho Securities warned prices couldgo negative as Russia and Saudi Arabia flood the market.
|Other oil-market news:|
The rout amid ruthless competition between exporters has prompted Iraq tourge OPEC and its allies to regroup for negotiations. Before OPEC+ talks collapsed earlier this month, Iraq had routinely disregarded the supply cutbacks it had promised. Now the producer has asked the cartel to hold a meeting to consider steps for re-balancing the global oil market, according to a delegate.
— With assistance by Sharon Cho, Dan Murtaugh, James Thornhill, and Saket Sundria
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