Oil prices fell below US$30 a barrel on Monday after the worldwide coronavirus outbreak worsened over the weekend, exacerbating fears that government lockdowns to contain the spread of the disease would spark a global recession.
Saudi Aramco reiterated plans to boost output to record levels to boost its share of the global market. Top global oil producers Saudi Arabia and Russia started a price war after failing to agree on a plan to curb supply as the global economic slowdown destroys oil demand.
The coming flood of supply from Saudi Arabia and other producers could result in the largest surplus of crude in history, said global information provider IHS Markit.
Brent crude settled down $3.80, or 11.2 percent, at $30.05 a barrel. The international benchmark fell as low as $29.52 a barrel, its lowest since January 2016.
US West Texas Intermediate (WTI) crude fell $3.03, or 9.6 percent, to end at $28.70 a barrel, its lowest since February 2016.
Saudi Aramco is likely to sustain higher oil output in May, Chief Executive Amin Nasser said, signaling the top oil-producing company is prepared to live with low prices for a while.
The coronavirus outbreak, which has infected at least 174,000 people and killed around 6,700, already has caused oil prices to plummet by 50 percent this year. Many forecasters have lowered estimates on crude demand, as the virus disrupts business activity, travel and daily life.
With Saudi Arabia and Russia pledging to boost production, IHS Markit estimates that oversupply of oil could come to 800 million to 1.3 billion barrels — double or triple what existed in late 2015 to early 2016, when the Organization of the Petroleum Exporting Countries pumped more oil to combat the growing US shale industry.
“The last time that there was a global surplus of this magnitude was never. Prior to this, the largest six-month global surplus this century was 360 million barrels. What is coming will be twice that or more,” said Jim Burkhard, vice president and head of oil markets at IHS Markit.
An OPEC and non-OPEC technical meeting planned for Wednesday in Vienna has been called off as attempts to mediate between Saudi Arabia and Russia made no progress, sources said.
Central banks globally took action over the weekend to try to quell economic fallout of the pandemic, but the measures did little to strengthen stock markets in freefall, as investors anticipate a sharp contraction in demand in coming weeks anyway.
The US Federal Reserve on Sunday slashed its key rate to near zero, triggering an unscheduled rate cut by the Reserve Bank of New Zealand to a record low as markets in Asia opened for trading this week.
The Bank of Japan later stepped in by easing monetary policy further, while Gulf central banks also cut interest rates.
In China, where the virus began, daily refinery throughputs dropped 4.8 percent in the first two months of the year, sliding to the lowest level since December 2018, data from the National Bureau of Statistics showed on Monday.
Brent’s premium to WTI narrowed to less than $1 during Monday’s session, falling to its lowest since 2016, making US crude oil uncompetitive in international markets.
Numerous US oil companies have swiftly cut spending, with analysts anticipating consolidation or restructurings. US crude output has grown in recent years to nearly 13 million bpd, making it the world’s largest producer.
“Some of them (US shale oil companies) may not survive prolonged low oil prices, and in this event US production would decrease. Less crude availability in the US is likely to reduce the WTI discount to Brent,” Societe Generale analysts in a note to clients.
US President Donald Trump said on Friday Washington would take advantage of low oil prices and fill the US emergency crude oil reserve. The move is aimed to help energy producers struggling from the price plunge.
The United States could begin purchasing domestically produced crude oil for the Strategic Petroleum Reserve as soon as two weeks from now, and fill it in several months, an Energy Department source said on Monday. However, the purchases are not seen as likely to offset the drop in demand nor the increase in supply, Energy Aspects said in a note.
“The impact on weekly crude supply shifts could be as much as 4-5 million barrels starting in a couple of weeks,” Jim Ritterbusch, president of Ritterbusch and Associates, said in a report. “However, we will note that such supply represents a drop in the bucket in relation to the amount of oil consumed globally on a daily basis.”
US oil output growth from the Permian basin is expected to offset declines in every other shale formation in April, helping push overall production up by about 18,000 barrels per day (bpd) to a record 9.08 million bpd, data showed.