US crude oil price falls below $20
US crude oil prices fell below $20 a barrel shortly after trading reopened on Sunday, close to their lowest level in 18 years, as traders bet production would have to shut to cope with the collapse in demand from the coronavirus pandemic.
The US benchmark, known as West Texas Intermediate or WTI, hit a low of $19.92 a barrel, losing more than 6 per cent.
Brent, the international benchmark, lost 6 per cent to hit a low of $23.03 a barrel, the lowest since 2002.
Oil prices have fallen by more than half in the past month as widespread lockdowns in Europe and North America have slashed oil demand, with analysts forecasting as much as a quarter of normal global consumption could be lost.
With supply accumulating at the same time because of the price war between Saudi Arabia and Russia, traders believe the surplus could approach 25m barrels a day next month, a level that could overwhelm storage capacity worldwide within weeks.
“This is a historic oil price collapse, and it is not done yet as the system physically runs out of places to put all the oil,” said Jason Bordoff, a former energy adviser to the Obama administration and the founder of the Center on Global Energy Policy at Columbia University. “The pain in the shale patch is going to be severe. We will see production shut-ins accelerate.”
Prices are expected to remain under pressure until the market adjusts and producers will probably be forced to close down output at a scale never seen in the modern oil industry.
WTI briefly traded below $20 a barrel this month as the April contract expired, dropping violently in thin trading. But this is the first time WTI has traded sub-$20 a barrel since 2002 in normal trading conditions.
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Higher cost producers such as US shale and Canadian tar sands are broadly unprofitable at these price levels, though companies will hope other producers shut off production first, creating a war of attrition in the industry.
But the sheer speed and depth of the price fall, which has taken crude below the levels to which it plunged both in the last crash in 2014-16 and during the financial crisis, will probably force a quick reckoning in the industry. US energy producers already made the biggest cut to the number of drilling rigs operating in five years last week, according to data from Baker Hughes.
Analysts have calculated that the US oil industry, which has soared in the last decade to make America the world’s top oil producer, could contract by as much as 2.5m b/d by the end of 2021, from around 13m b/d of crude output now.
Other expensive production, from the North Sea to marginal fields in Asia, will probably also come under pressure. The largest oil companies have already announced reductions in capital expenditure or are studying plans to scale down.
The US has put pressure on Saudi Arabia to scale back its supply surge, but has made little impact.
Saudi Arabia launched the price war this month after clashing with Russia over how to respond to the coronavirus-linked hit to demand. But increasingly it is the decline in demand that is worrying the oil industry, with airlines grounded, commuters working from home and factories shutting down.