The pressure on global oil markets has intensified greatly as the price of Brent crude dropped to less than $20 per barrel for the first time since 2002 and other major oil benchmarks in free fall.
Brent - the international crude marker - fell to $18.10 per barrel, in a sign that there will be no immediate respite from the global collapse in demand for oil. With storage space close to maximum capacity, some oil benchmarks in the US dropped to under $0 for the first time ever yesterday, leaving producers paying for have their oil taken away.
The outbreak of Covid-19 has created a crisis in the oil sector. With a third of the world's population under some form of lockdown, demand for crude has been slashed.
West Texas Intermediate (WTI) contracts for delivery next month fell to as low as minus $40 per barrel yesterday, prompting analysts at Citi to declare “if global storage worsens more quickly, Brent could chase WTI down to the bottom”.
The fall in the May WTI contract was in part a technical product of the fact that it expires on Tuesday, meaning trading volumes were low and making the contract for June delivery more noteworthy, analysts said. That contract held above $20 a barrel on Monday but slid as much as 42% on Tuesday to trade at lows of $11.79, suggesting the blowout in the May contract was more than a blip and that the entire global oil market faced challenges.
Analysts at Goldman Sachs said that in the coming weeks, the contract for June is also likely to face downward pressure due to "unresolved market surplus".
“As storage becomes saturated, price volatility will remain exceptionally high in coming weeks,” they said. “But with ultimately a finite amount of storage left to fill, production will soon need to fall sizeably to bring the market into balance, finally setting the stage for higher prices once demand gradually recovers.”
Equities in Europe also traded lower, partly due to being pulled down by weaker energy stocks. The Stoxx 600 - which covers 17 countries across the continent - was down by 1.9% with its oil and gas sub-index down by 3.3%. London's FTSE fell by 1.7% as the Dax in Frankfurt dropped by 2.3%.
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