US crude drops below US$20 a barrel as broken market drowns in oil

SYDNEY (BLOOMBERG) – Crude dropped to its lowest in 17 years on Monday (March 30) as coronavirus lockdowns cascaded through the world’s largest economies, leaving the market overwhelmed by cratering demand and an unmanageable surplus.

Futures in London fell as much as 7.6 per cent to their lowest since November 2002 while also slumping in New York to trade below US$20 a barrel. Physical oil markets are struggling to store fuel, hit by a double whammy of coronavirus restrictions eroding demand while Saudi Arabia and Russia dig in their heels over a damaging war for market share.

Brent crude for May lost as much as US$1.90 to US$23.03 a barrel on the ICE Futures Europe exchange before trading at US$23.54 at 9:54am Sydney time. West Texas Intermediate fell as much US$1.59 to US$19.92 a barrel on the New York Mercantile Exchange before trading at US$20.29.

Saudi Arabia said on Friday that it hadn’t had any contact with Moscow about output cuts or enlarging the Opec+ alliance of producers. Russia also doubled down, with Deputy Energy Minister Pavel Sorokin saying oil at US$25 a barrel is unpleasant, but not a catastrophe for Moscow.

“Demand concerns are critical but well known, what really took the market down were the signals we got from Saudi Arabia and Russia that they intend to continue their current path,” said Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia. “Market hopes of a deal have come undone.”

Opec nations aren’t giving support to a request from the group’s president for emergency consultations over tanking prices, according to a delegate. Algeria, which holds the cartel’s rotating presidency, urged the secretariat this week to convene a panel that assesses market conditions but the request has failed to gather the majority backing necessary to go ahead. Riyadh is among those opposing the idea.

The world normally uses 100 million barrels of oil day, but traders and analysts reckon as much as a quarter of that has disappeared in just a few weeks. The accelerating plunge in consumption is without precedent since a steady flow of oil became essential to the global economy more than a century ago. The great crash of 1929, the twin oil shocks of the 1970s and the global financial crisis don’t come close.