Oil tumbles to 18-year low amid Covid-19, price war

Crude oil prices continued the free fall on Wednesday, with West Texas Intermediate futures declining dropping to $22.63 a barrel.

The U.S. benchmark crude prices were trading $4.32, or 16.03%, lower at 12:02 p.m. EDT in New York. This is the lowest level in 18 years, reflecting the bearish global market for commodities, stocks and currencies.

Brent crude was trading at $26.06 a barrel, which is down $2.67 or 9.29% from the previous session. This is the lowest the future has been since 2003.

The sell-off in oil markets are being fuelled by continuous statements from Saudi Arabia, amid the fast spread of the coronavirus and its destructive impact on the global economy. Yesterday, Saudi Aramco said it was directed by the Saudi oil ministry “to continue to supply crude oil at a level of 12.3 Mmbpd over the coming months.” The statement suggests the oil war will continue despite the ongoing challenges.

According to HFI Research, if Brent falls to $20 a barrel, the Saudis will be selling oil to Europe for $8-10/Bbl. If Brent falls to $15, that price drops to $3-5/Bbl. But if Brent continues declining and reaches $10, then “the Saudis could be selling to Europe at $2 to $0 due to OSP (official selling price) cut.”

“Have the Saudis accounted for this? We certainly hope so. Seller’s remorse is going to be painful,” HFI Research said on Twitter.

Meanwhile, Goldman Sachs said on Tuesday “demand losses across the complex are now unprecedented” and oil consumption has sunk by 8 Mmbpd. Jeffrey Currie, global head of commodities research at Goldman said in a note that both WTI and Brent will average $20 a barrel in the second quarter. Previous forecast placed WTI at $29 and Brent at $30.

Source: Kallanish Energy