Crude crude benchmark dropped 20 percent on Monday, with futures reaching lows unseen since 1999 -- and with spillover of weakness on the back of falling demand raised worries that U.S. storage facilities would soon reach the brim in the midst of the global crisis.
The oil market was under pressure due to a series of reports from the Organization of the Petroleum Exporting Countries and the International Energy Agency about plunging fuel demand and bleak forecasts.
The amount of oil kept in US storage, particularly at the U.S. delivery point in Cushing, Oklahoma. West Texas Intermediate contract, due to the slumping demand, is rising as refiners throttle back operations.
The US crude benchmark West Texas Intermediate has briefly fallen to nearly 20 percent below US$15 as stockpiles continue to rise as a result of a pandemic-induced collapse in demand.
Last week WTI lost nearly one-fifth of its value as the agreement by OPEC+ and other top producers to cut production by 10 million barrels a day had little effect on the oil crisis due to lockdowns and travel restrictions that held billions of people at home.
This price action comes a week after a decision to cut supply by more than 9.7 million barrels per day was backed by Russia, OPEC and G20 leaders.
Although the International Energy Agency has endorsed the OPEC+ contract, industry analysts warn that it won't suffice. This is attributable at a time when most people are remaining indoors, to the low demand for oil products. It can also be noted that demand will be weaker than IEA expected, as the economy will take months or years to recover.
Faced with an unprecedented 30 percent decrease in fuel demand worldwide, the oil industry has been steadily reducing growth. Saudi Arabian officials have estimated that overall global oil output reductions could amount to nearly 20 million barrels per day, but this requires voluntary reductions from nations such as the United States and Canada, which can not necessarily turn on or off production in the same way as other OPEC countries.
Numerous significant production cuts have been announced, including Chevron Corp, BP plc, and Total SA. But economic growth is slowing, and physical crude markets and an estimated 160 million barrels of oil stored on board ships indicate that prices will continue to decline.
Meanwhile, China announced its first economic downturn in decades on Friday, an indication of what is yet to emerge from the pandemic-driven lockdowns in Europe and North America. However, there were some signs of hope, as death rates in New York and some of Europe's hardest-hit countries eased.
