Oil plunges in worst fall since Gulf War
SINGAPORE/LONDON: Oil plunged as both Russia and Saudi Arabia stood poised to flood the market with cheap crude in an all-out price war just as the coronavirus is spurring the first contraction in demand since 2009.
The former allies pledged swift retribution for the collapse of the Opec+ alliance meeting last week. The Gulf kingdom has slashed its official crude prices and is threatening record output. Russia’s largest producer, meanwhile, said it will ramp up production next month. Oil futures fell by about one-third in New York and London on Monday, the biggest drop since the Gulf War in 1991, before pulling back to a 20% decline.
The free-fall ricocheted across financial markets.
All of the annual growth the International Energy Agency (IEA) had anticipated last month—just over 800,000 barrels a day—has been wiped out and oil demand is now expected to contract by 90,000 barrels a day.
“The situation we are witnessing today seems to have no equal in oil market history,” said IEA executive director Fatih Birol. “A combination of a massive supply overhang and a significant demand shock at the same time.”
The cataclysmic price collapse resonated through the energy industry, from giants like Exxon Mobil Corp., which saw its stock drop the most in 11 years, to smaller shale drillers in West Texas. Shares of Hess Corp., Occidental Petroleum, and Chevron all suffered double-digit losses.
“There will be almost no place to hide,” Stewart Glickman, energy analyst at CFRA Research said in a note. “Exploration and production, of course, will be worst off since their fortunes wax and wane with crude oil prices.”
Brent for May settlement tumbled as much as $14.25 a barrel to $31.02 on the London-based ICE Futures Europe Exchange. West Texas Intermediate crude for April slumped as much as 34% to $27.34 a barrel on the New York Mercantile Exchange. The US benchmark traded at $33.08 at 12.45pm. The shocks in supply and demand have reverberated across time-spreads, options and volatility.