Intensifying recession fears drove the price of oil to its lowest levels in 18 years on Wednesday as the commodity’s prices went down a staggering 24% to $20.37 a barrel, Business Insider reports.
Selling escalated throughout the day, with 9% morning losses more than doubling by the afternoon. The acceleration reflects a growing realization of just how much the coronavirus outbreak is slamming the world economy.
The relentless selling is being driven by a crushing combination of excess supply and shrinking demand. And it’s dealing a crushing blow to America’s once-booming oil industry.
The coronavirus pandemic has caused global travel to collapse, eating into the world’s once-insatiable thirst for oil, which powers the economy. Countless flights have been canceled, the cruise industry is at a standstill. Highways are empty and many factories are dark.
At the same time, Russia and Saudi Arabia picked a terrible time to step away from roles as price stabilizers. Russia refused to cut production, in a bid to drown America’s high-cost shale producers in a sea of cheap crude. Saudi Arabia responded by slashing prices and ramping up production — exactly the opposite of what was needed to balance the market.
“With each day there seems to be yet another trapdoor lying beneath oil prices,” Louise Dickson, analyst at Rystad Energy, wrote CNN in an emailed comment. “What we are seeing here is essentially the atomic bomb equivalent in the oil markets.”
With travel restrictions and quarantines accelerating, energy analysts are scrambling to downgrade their oil demand forecasts.
Goldman Sachs now expects 2020 oil demand to shrink by 1.1 million barrels per day, hitting a low in March when demand could plunge by 8 million barrels.
Rystad Energy is even more pessimistic, calling for a plunge of 2.8 million barrels per day in 2020. That’s up fourfold from the energy firm’s previous call for a drop of just 600,000 barrels per day. April demand alone is likely to nosedive by 11 million barrels per day, Rystad said.
Against that dismal backdrop, analysts warn more selling is likely to come in the oil patch.
Goldman Sachs warned Tuesday evening of an “inevitable fall” in U.S. oil prices to around $20 a barrel during the second quarter. That’s well below the Wall Street bank’s previous call for $29 oil.
