Oil slumps to lowest since 2003 on global recession threat

[SINGAPORE] Oil briefly traded below its lowest settlement price in almost 17 years as the coronavirus pandemic threatens to bring the global economy to a standstill, battering demand just as supply explodes.

Futures in New York fell as much as 2.8 per cent to US$26.20 a barrel, which would be the lowest close since May 2003 if prices settle at that level. The last time crude traded near this level was when severe acute respiratory syndrome, or Sars, hit Asia. Oil clawed back some of its initial losses but remains more than 15 per cent weaker this week in the most volatile trading on record.

While policymakers around the world take unprecedented steps to shore up their economies from the fallout of the virus, the meltdown in crude demand and concurrent supply free-for-all by the world's biggest producers continue to pull prices down.

"I don't think we have hit peak demand devastation yet," said Stephen Innes, Asia-Pacific market strategist at AxiCorp, who predicts oil may fall to US$18-US$20 a barrel. "If cases exponentially increase, especially in the US, its going to spook the hell out of oil traders."

The market is finding little succor in global efforts to stem the economic fallout. The US Federal Reserve on Tuesday announced the restart of a financial crisis-era programme in an effort to stem the economic impact from the virus. While US stocks rebounded from the biggest rout since 1987 on the plan, oil continued its slide as Saudi Arabia signaled its intention to ship a record 10 million barrels a day in April.

West Texas Intermediate for April delivery dropped four US cents to US$26.91 a barrel on the New York Mercantile Exchange as at 1.17pm in Singapore. Brent crude climbed 26 US cents to US$28.99 on the ICE Futures Europe exchange after slumping 4.4 per cent on Tuesday.

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US petrol prices recovered some ground after the biggest daily drop on Monday since 2005. The motor fuel was up 3 per cent at 73.25 cents a gallon in light volumes on Wednesday.

The supply and demand shocks have hammered Wall Street's outlook for oil. Goldman Sachs Group Inc said consumption is down by eight million barrels a day and cut its Brent forecast for the second quarter to US$20 a barrel. Standard Chartered plc predicted the low for the global benchmark crude will likely be well below US$20 next quarter, while Mizuho Securities warned prices could go negative as Russia and Saudi Arabia flood the market.

The rout amid ruthless competition between exporters has forced Iraq to urge the Organization of the Petroleum Exporting Countries (Opec) and its allies to regroup for negotiations. Before Opec+ talks collapsed earlier this month, Iraq had routinely disregarded the supply cutbacks it had promised. Now the producer has asked the cartel to hold a meeting to consider steps for rebalancing the global oil market as a massive glut emerges, according to a delegate.

BLOOMBERG