LONDON (Reuters) – Brent crude prices extended falls on Monday with demand sliding as travel and industrial activity contracted across the globe in a bid to stem the spread of coronavirus.
FILE PHOTO: The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. Picture taken November 22, 2019. REUTERS/Angus Mordant/File Photo
Brent crude LCOc1 futures had fallen 35 cents, or 1.3%, to $26.63 a barrel by 1223 GMT. In early U.S. trading, West Texas Intermediate (WTI) crude CLc1 futures erased earlier losses and were up 84 cents, or 3.7%, at $23.47 a barrel, having fallen 2 percentage points more than Brent this year.
The demand destruction caused by the coronavirus pandemic comes as the oil market contends with the unexpected price war that erupted between producers Russia and Saudi Arabia, effectively ending an OPEC+ alliance and flooding the market with barrels.
Oversupply is so extreme that regulators in Texas considered curbing production there for the first time in nearly 50 years. The United States plans to send a special energy envoy to Saudi Arabia to work with the kingdom on stabilizing the global oil market, U.S. officials said on Friday.
The six-month spread of Brent futures LCOc1-LCOc7 hit its steepest since 2009 at a discount of around $9, a contango structure which reflects the current oversupply.
(GRAPHIC: Brent six-month contango – here)
Oil prices have posted four straight weeks of losses and dropped more than 60% since the start of the year. Prices of everything from coal to copper have also been hit by the coronavirus crisis, while bond and stock markets are in rarely charted territory.
“Set against this dismal outlook, the downward spiral in oil prices is poised to continue and may well reach the mid-teens. Put simply, the search for a price floor is by no means over,” PVM analysts said in a note.
The Tokyo Olympics became the latest potential casualty of the pandemic as Japan and the games organizers’ raised the prospect of a delay from the summer, while Canada and Australia announced they would not send athletes to the event.
The coronavirus, which has infected more than 325,000 and killed more then 14,000 worldwide, has disrupted business, travel and daily life.
Many oil companies have rushed to cut spending and shareholder payouts while refiners worldwide are slashing production or considering cuts as demand for fuel evaporates.
Almost a third of Americans are now under orders to stay at home as states take extra measures to stem the rising numbers of cases in the world’s biggest economy, while in New Zealand Prime Minister Jacinda Adern said all non-essential services and business are to be shut down.
Bankers, analysts and producers are downgrading demand forecasts by the day, with numbers fluctuating around a loss of around 10 million barrels.
Additional reporting by Aaron Sheldrick in Tokyo; editing by Kirsten Donovan, Jason Neely and Louise Heavens