By David Gaffen
(Reuters) – Crude oil benchmarks slumped at the open of electronic trading on Sunday, extending last week’s losses as the global coronavirus pandemic worsened and the Saudi Arabia-Russia price war continued unabated.
In early trading, Brent futures fell 7.1% to $23.15 a barrel as of 6:13 p.m. EDT (2213 GMT), while U.S. crude futures lost 5.6%, or $1.17, to $20.34 a barrel.
The oil markets are enduring a twin shock of demand destruction caused by the coronavirus pandemic and the Saudi-Russia price war that is flooding markets with extra supply.
The coronavirus pandemic has already killed about 32,000 people and sickened more than 500,000 worldwide. On Sunday, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, estimated the United States alone could suffer as many as 200,000 deaths.
The virus has brought the worldwide aviation industry to a standstill and put roughly 3 billion people on lockdown to limit the spread of the virus. With many eschewing daily automotive use, analysts have estimated worldwide fuel demand could fall by as much as 20% in the coming month.
Despite this, Saudi Arabia and Russia remain at loggerheads. Russian oil companies have said they expect the price war to continue, while the Saudis have not given any indication that there are new talks coming to curb supply.
Still, any move Saudi Arabia and the Organization of the Petroleum Exporting Countries makes may not be enough, Goldman Sachs said last week in a note. They anticipated a fall of nearly 19 million bpd in global oil demand in April. “A demand shock of this magnitude will overwhelm any supply response including any potential core-OPEC output freeze or cut,” they wrote.
In recent days prices for crude oil traded at key locales such as Midland, Texas, have traded at several dollars less than U.S. futures, an indication that companies there are anticipating a flood of supply. U.S. oil production is currently running at roughly 13 million barrels per day, a record, but is expected to drop by more than 1.4 million bpd by the end of the third quarter 2021.
This past week, the Baker Hughes rig count fell by 40, the most since 2015, as companies swiftly pull in spending. Most global majors have announced plans to cut back on capital expenditures and hundreds have already been laid off in anticipation of oil prices falling through the $20-per-barrel mark.
(Reporting by David Gaffen; Editing by Peter Cooney and Daniel Wallis)
