SYDNEY (BLOOMBERG, REUTERS) - Oil's spectacular collapse deepened in early Asian trade on Monday (March 16) as investors weighed measures by governments and central banks to help shore up the global economy against the unprecedented demand shock from the fast-spreading coronavirus.
Futures in London fell as much as 6 per cent after plunging by a quarter last week - the market's biggest weekly drop since 2008. Travel restrictions across the globe tightened further over the weekend in efforts to contain the spread of the virus, with the US extending its travel ban to include Britain and Ireland. Australia said anyone entering the country must self-isolate for two weeks, Spain imposed a lockdown and France closed cafes and restaurants.
Brent crude for May slid US$1.87, or 5.5 per cent, to US$31.98 a barrel at 6:57am Singapore time. Futures fell 25 per cent last week to US$33.85, the largest weekly drop since December 2008. West Texas Intermediate for April delivery dropped 4.8 per cent to US$30.22 a barrel on the New York Mercantile Exchange.
The sharp slow down in activity brought on by the virus is being compounded by a potential flood of supply in April, with top producers Saudi Arabia and Russia pledging to ramp up production. The Middle East kingdom doubled down on the war for market share last week by sending a wave of crude to Europe, Russia's traditional market, further dimming the likelihood of a reconciliation.
The concurrent demand supply shocks hitting the oil market appeared to prevail over efforts to shore up the global economy. The Federal Reserve on Sunday cut its benchmark rate by a full percentage point to near zero and will boost its bond holdings by at least US$700 billion (S$989.6 billion). That followed President Donald Trump on Friday announcing the US government would buy oil to fill its strategic petroleum reserve.
"The market is trying to weigh up between the Fed rate cut, quantitative easing and the fact that the situation is a lot worse than we all thought," said David Lennox, Resources Analyst at Fat Prophets by phone. "We've seen that huge panic sell-off, so it could be that there is limited downside from here."
The Fed's weekend move could trigger a fresh round of monetary easing around the world as countries look to keep money flowing as economic activity grinds to a halt. New Zealand's central bank slashed rates by 75 basis points on Monday. The scale of the task facing economic policymakers is likely to be laid bare later on Monday, with the latest numbers on China's industrial output, investment and retail sales forecast to show an across-the-board contraction for the first time on record.
Travel restrictions within the US are threatening demand for motor fuel. Gasoline futures' premium to oil fell to as little as US$3.85 a barrel on the Nymex. It was US$17 on March 6.