..But IEA Optimistic Of Market Recovery By Q2
Yemisi Izuora
Oil fell at multi-year lows Thursday, with West Texas Intermediate, WTI crude close to its weakest level since 2002, as dire warnings about a virus-triggered demand shock overshadowed massive output cuts.
The US benchmark WTI, rose nearly three percent to change hands at $20.44 per barrel after falling below $20 on Wednesday its lowest price in 18 years.
However, the International benchmark Brent crude, which also suffered heavy losses a day earlier, rose two per cent to trade at $28.31 a barrel.
Prices have crashed as the Coronavirus pandemic saps global demand, with the situation compounded by a supply glut resulting from a price war between OPEC cartel kingpin Saudi Arabia and non-OPEC rival Russia.
A compromise hammered out at the weekend by Riyadh, Moscow and other crude producers to slash output by around 10 million barrels per day briefly boosted prices but the rally soon fizzled out.
Investors fear the agreement does not go far enough to offset massive demand losses, as storage capacity around the world shrinks because of the glut.
Adding to traders’ worries, the International Energy Agency, IEA, said Wednesday that 2020 was likely to be “the worst year in the history” of the sector.
For 2020 overall, demand will fall by 9.3 million barrels per day (mbd), with April alone down 29 mbd from a year earlier to levels last seen in 1995, the IEA said in its latest monthly report.
Stephen Innes, chief global markets strategist at AxiCorp, however said that the market had found some support in Asian trade Thursday as it was “leaning towards a combination of deeper OPEC+ cuts and a more assured response from the G20 producers to avoid a further collapse in oil”.
An estimated drop in demand of 9.3 million barrels a day this year is equivalent to a decade’s worth of growth. The agency, which advises nations on energy use, expects the slide in demand to be the most intense this month, calling it a “Black April” for the energy market.
“We may see it was the worst year in the history of global markets,” said Fatih Birol head of the IEA.
The price of crude has fallen about 60 per cent since the start of the year due to a pricing war between Saudi Arabia and Russia and then the economic devastation wrought by the virus outbreak.
While the cheaper energy can be helpful for consumers and energy-hungry businesses, it is below the cost of production. That is eating away at the state finances of oil-producing countries, many of whom are relatively poor economies, and pushing companies to bankruptcy. With broad limits on travel and business, many consumers are unable to take advantage of the low prices anyway.
Birol said that the recent deal by OPEC and other countries to reduce global output by some 9.7 million barrels a day will help stabilize the situation somewhat.
On top of those cuts, countries like China, India, South Korea and the United States will look to buy more oil to store away in strategic reserves.
And the slide in oil prices is already reducing production in many non-OPEC countries as the cost of pumping crude exceeds the return from selling it on the market. Such declines in the US, Canada, Brazil and Norway amount to a decline of 3.5 million barrels a day.
The IEA says there could be a recovery in the second half of the year though there remains a lot of uncertainty over how the pandemic will continue to affect the global economy.
The price of oil dropped again on Wednesday after the IEA estimates. The US benchmark was down 3.8 per cent at $19.34 a barrel, while the Brent international contract was down 5.2 per cent at $28.04 a barrel.
