Oil at 17-year low as demand plunges

LONDON • Oil yesterday slumped to a 17-year low as lockdowns due to the coronavirus cascaded through the world's economies, leaving the market overwhelmed by cratering demand and a ballooning surplus of crude.

Futures in London fell as much as 7.6 per cent to the lowest since November 2002, while New York crude briefly dipped below US$20 a barrel. Physical oil markets are struggling to store fuel, hit by a double whammy of virus restrictions eroding demand and a damaging war for market share between Saudi Arabia and Russia that has prices on track for the worst quarter on record.

The kingdom last Friday said it had not had any contact with Moscow about output cuts or enlarging the Opec+ alliance of producers. Russia's Deputy Energy Minister Pavel Sorokin said oil at US$25 a barrel is unpleasant, but not a catastrophe for its producers.

"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 on their current path," said commodities analyst Vivek Dhar at Commonwealth Bank of Australia. "Market hopes of a deal have come undone."

Members of the Organisation of the Petroleum Exporting Countries (Opec) are not giving support to a request from the group's president for emergency consultations over tanking prices, said a delegate.

The world normally uses 100 million barrels of oil a day, but forecasters believe as much as a quarter of that demand has disappeared in just a few weeks. Global oil demand is in freefall and consumption may decline by up to 20 million barrels a day, according to the International Energy Administration. That is forcing producers to slash output, while independent trader Trafigura Group expects up to one billion barrels to be sent into storage tanks in the coming months.

BLOOMBERG