Oil Enters $20 Territory as Market Warned of Biggest Supply Blowout Ever

 Oil Enters $20 Territory as Market Warned of Biggest Supply Blowout Ever
imageCommodities11 hours ago (Mar 16, 2020 03:53PM ET)

(C) Reuters.

By Barani Krishnan

Investing.com – Oil prices tumbled anew on Monday, with global benchmark Brent sinking 12%, as recession fear from the coronavirus crisis descended on markets and consultancy IHS Markit warned of a 1.3-billion-barrel crude surplus over the next six months, the biggest ever.

U.S. West Texas Intermediate crude fell below the key $30 per barrel support while Brent struggled to stay above that level, having broken it earlier.

On Wall Street, the Dow, S&P 500 and Nasdaq were all down about 9%, ignoring the Federal Reserve’s emergency move to cut rates to near zero and the central bank’s promises to buy $700 billion of assets to support markets.

IHS Markit estimated that the crude surplus could range from 800 million to 1.3 billion barrels in the first six months of 2020. Until now, the largest six-month global surplus since 2000 was from late 2015 to early 2016, when it was a cumulative 360 million barrels, it said.

A serious oversupply is looming in oil as the clampdown on air, road and sea travel intersects with Saudi Arabia’s ill-timed production hikes.

“There has been a dizzying drop in world oil demand and a dramatic pivot in Saudi oil production policy. If this situation persists amidst a recession, it points to the possible buildup of the most extreme global oil supply surplus ever recorded,” said Jim Burkhard, vice president and head of oil markets at IHS Markit.

U.S. crude oil production, estimated at record highs above 13 barrels per day just last week, could fall by 2 million to 4 million bpd over the next 18 months from the combination of the economic crunch caused by the coronavirus crisis and overproduction by Saudi Arabia, the consultancy added.

“The largest 2020-21 impact on production volumes will be in the United States due to the fast reactivity of U.S. oil producers and the high decline rates of tight oil wells,” it said.

WTI settled down $3.03 , or 9.5%, at $28.70 per barrel.

Brent finished down $3.80, or 11%, at $30.05.

Oil prices managed to settle up on Friday, despite Brent and WTI closing the week down 25%, after President Trump said his administration said it will top up the U.S. Strategic Petroleum Reserve, in what appeared to be a boon for shale oil producers in the country.

But by Monday, the impact of that announcement fizzled on estimates that the administration can only buy a maximum of 220,000 bpd on the average through the year end to fill the SPR, when current the total loss for crude demand was several multiples higher.

As of last week, Rystad Energy, another consultancy, saw global air traffic plunging 16% or more in 2020, resulting in a loss of around 780,000 bpd in jet fuel demand.

Carriers like American Airlines (NASDAQ:AAL) have slashed as much as 75% of their international capacity after Trump announced a ban on European travelers into the U.S., while EU members took individual measures to secure their borders.

Oil Enters $20 Territory as Market Warned of Biggest Supply Blowout Ever

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