National Post (National Edition)
Oil falls amid fears looming recession will crush demand
Saudis planning to ship 10 million barrels a day
Oil deepened losses, dropping to the lowest level since 2016 as the coronavirus pandemic threatens to bring the global economy to a standstill, battering fuel demand at a time when crude supply is surging.
WTI futures fell six per cent in New York on Tuesday as investors grappled with the possibility of a virus-induced global recession. The U.S. Federal Reserve announced the restart of a financial crisis-era program in an effort to stem the virus’s economic impact. U.S. stocks rebounded from the biggest rout since 1987 on the stimulus plan, but oil continued to reel from supply-and-demand shocks. Saudi Arabia plans to ship a record 10 million barrels a day in April.
“These are dramatic and unheard-of disruptions,” said Pavel Molchanov, energy research analyst at Raymond James & Associates Inc. “Lockdowns around the world alone would be enough to trigger a bear market for oil. Add in the collapse of OPEC+, those two create an unbelievably toxic combination. This crisis is shaping up to be the worst shock to global demand in modern history.”
Oil markets are coping with an unprecedented upheaval in demand as the pandemic wreaks havoc on travel amid widening lockdowns.
The slump in demand is coinciding with a flood of supply as Saudi Arabia and Russia engage in a price war for market share. The instability has prompted Iraq to ask OPEC to hold a meeting of the Joint Ministerial Monitoring Committee to consider steps for rebalancing the oil global market.
The supply and demand shocks have dimmed Wall Street’s outlook for oil. Goldman Sachs Group Inc. said oil consumption is down by eight million barrels a day and cut its Brent forecast for the second quarter to US$20 a barrel. Meanwhile, Mizuho Securities Llc. warns crude prices could go negative as Moscow and Riyadh flood the market with supply.
West Texas Intermediate for April delivery fell US$1.75 or 6.1 per cent, to settle at US$26.95 a barrel on the New York Mercantile Exchange. Brent lost US$1.32 to end the session at US$28.73 a barrel on the ICE Futures Europe exchange.
Meanwhile, Iraq’s oil minister has urged for an emergency meeting between OPEC and non-OPEC members to be called to discuss immediate action to help balance the oil market, according to a letter he sent to OPEC on Tuesday.
In the letter seen by Reuters, Thamer al-Ghadhban asked OPEC Secretary General Mohammad Barkindo to help “urgently achieve” extraordinary meetings of the OPEC+ group to “discuss all possible ways” to rebalance the oil market and mitigate current deteriorating conditions.
A deal to cut oil output struck by the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia — a grouping known as OPEC+ that pumps over 40 per cent of the world’s oil — is due to expire at the end of March.
That follows the collapse of talks earlier this month to deepen the cuts or extend the current pact.
Three years of co-operation between OPEC, Russia and other producers ended in acrimony on March 6, when Moscow refused to support deeper cuts to cope with the outbreak of coronavirus.
Moscow and other OPEC members have said that would mean removing all limits on their output, and Saudi Arabia has since said it would open the taps and hike oil production and exports to a record high. Oil prices have plunged since the meeting.
An OPEC and non-OPEC technical meeting, known as the JTC, planned for Wednesday in Vienna has been called off as attempts to mediate between Saudi Arabia and Russia made no progress, sources told Reuters on Monday.
The Iraqi minister also asked in the letter to hold an extraordinary meeting of the JTC and the OPEC+ ministerial committee known as the JMMC “to avoid adverse impacts on (the) short, medium and long term.”
Blomberg with files from Reuters