Global oil prices continue to be in a tailspin amid nationwide lockdowns to stop the coronavirus (COVID-19) pandemic and a deluge of production from Saudi Arabia and Russia.
With a slowing world economy, the West Texas Intermediate (WTI) touched recent record low of $21.51 per barrel on Friday, while the international benchmark Brent traded at $27.95 per barrel, far below the highs of $147 per barrel of July 2008.
Despite pressures from the Donald Trump administration to reach a compromise with Russia, Saudi Arabia continues with its surplus production targets. Growing concerns over the COVID-19 outbreak and a growing glut from producers such as Saudi Arabia, the United Arab Emirates and Russia have roiled global crude oil markets, with the build-up affecting US shale oil producers. Goldman Sachs expects crude prices to touch the $20 per barrel mark.
“The current $20/b crude environment is putting roughly 5 million b/d of high-cost crude production at risk of being shut in,” said Rob Stier, senior manager of petrochemical analytics at S&P Global Platts in a statement.
Experts are of the opinion that global oil demand for the March-April period could come down by around 10 million barrels per day (mbpd). This is significant as the daily global demand was around 101 mbpd.
With the world running out of place to store surplus oil, there has been a scramble to book storage capacities on supertankers and even in pipelines.
“Over the next few months, S&P Global Platts Analytics sees global “massive” crude stock builds of 500 million barrels in its best-case scenario, compared with the 1 billion-barrel build in its worst-case scenario, relative to end-February levels,” Rob Stier added.
The unprecedented rout has turned the oil market on its head, with major energy-consuming economies recalibrating their sourcing strategy against the backdrop of growing concerns over a deep global recession. Chinese oil giants are also keen to offload their share of so-called equity oil to Indian refiners as the viral outbreak has squeezed demand in their home market.
However, Indian refiners have also slashed their production due to the transportation fuel demand shrinking with citizens cooped indoors, though there has been an increase in the demand for domestic cooking gas against the backdrop of the three-week nationwide lockdown in the world’s largest such exercise aimed at stemming the spread of the virus.
“Over the longer term, the global response to COVID-19 could have significant structural effects on mobility patterns around the world. A key variable will be to what extent the remote working patterns established in the response period will become entrenched in the future,” IHS Markit said in a report.
India is the world’s third-largest crude buyer and the fourth-largest liquefied natural gas (LNG) importer. The downward pressure on the oil markets has also impacted the LNG prices.
“Total LNG deliveries to Europe are expected to reach nearly 11 million metric tons (MMt) —a 14% hike from the previous record set in December. The ongoing supply push into Europe comes just at the moment gas demand is collapsing at double digit rates,” IHS Markit said in another report.
“The record influx of LNG deliveries will likely swell EU gas storage—which are already well above historic averages—and put further downward pressure on prices that are already at historical lows,” the second report added.