Oil prices fell below $US30 a barrel overnight as 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.
Top global oil producers Saudi Arabia and Russia, having failed to agree on a plan to curb supply as the fall in global economic activity destroys oil demand, and have turned on each other to start a price war.
Saudi Aramco reiterated on Monday its plans to boost output to record levels to take a bigger share of the global market.
Brent crude settled down $US3.80, or 11.2 per cent, to $US30.05 a barrel. The international benchmark earlier fell to $US29.52 a barrel, its lowest since January 2016.
US West Texas Intermediate (WTI) crude fell $US3.03, or 9.6 per cent, to end at $US28.70 a barrel, its lowest since February 2016.
Saudi Aramco is likely to sustain higher oil output planned for April in May, chief executive Amin Nasser said, signalling the top oil-producing company is prepared to live with low oil prices for a while.
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.
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 per cent since the start of the year.
Many forecasters have adjusted down estimates on demand for crude, 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.
The projection is two to three times what existed in late 2015 to early 2016, when the Organisation 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 after the collapse of their supply cut pact made no progress, sources said.
Central banks globally took action over the weekend to try to quell the 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.
“The price response is understandable, given that lower interest rates and new bond purchasing programmes will do nothing to combat the current weakness of oil demand,” Commerzbank analyst Carsten Fritsch said.
In China, where the virus began, daily refinery throughputs dropped 4.8 per cent 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 $US1 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 back spending, with analysts anticipating consolidation or restructurings as a result of the supply shock. 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 the United States would take advantage of low oil prices and fill the nation’s 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.
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.