Despite the global COVID-19 pandemic forcing countries to shut their borders, added social distancing orders have kept people off the streets, unable to take advantage of some of the cheapest gas prices in years.
The health crisis has not stopped the continuing price war between Saudi Arabia and Russia. Saudi Arabia on Monday said it planned to raise exports even further, as its own domestic consumption drops during the pandemic. The plan is to raise the kingdom’s oil exports to a record 10.6 million barrels per day starting in May – escalating a price war with Russia.
Needless to say, the price war and the global pandemic has kept oil prices under pressure, with the major benchmarks recording losses for five straight weeks, according to Reuters.
Brent crude, the international benchmark for oil prices, was down $2.19, or 8.78 percent, at $22.74, after earlier dropping to $22.58, the lowest since November 2002. U.S. West Texas Intermediate (WTI) crude fell $1.41, or 6.5 percent, to $20.10. Earlier in the session, WTI fell as low as $19.92.
Analysts are now saying the price of oil has dropped so much that it has become unprofitable for many oil firms to remain active, forcing higher-cost producers to shut down production, seeing as global storage capacities are nearly full.
“Global oil demand is evaporating on the back of COVID-19-related travel restrictions and social distancing measures,” said UBS oil analyst Giovanni Staunovo, reports CNBC.
And it looks to get worse. Rystad Energy’s head of oil markets, Bjornar Tonhaugen said: “The oil market supply chains are broken due to the unbelievably large losses in oil demand, forcing all available alternatives of supply chain adjustments to take place during April and May,” including cutting refineries runs and increasing storage.
Jason Bordoff, a former energy adviser to the Obama administration and the founder of the Center on Global Energy Policy at Columbia University told the Financial Times that with this historic collapse in oil prices, “The pain in the shale patch is going to be severe. We will see production shut-ins accelerate.”
