Meanwhile, U.S. producers take the hit for the Saudi/Russia price war: File Image/PixaBay
With the relentless media coverage of the coronavirus and resulting public panic now in overdrive, it came as no surprise that news on Thursday of U.S. president Donald Trump closing travel from Europe to his country caused yet more heavy losses for crude.
Brent plummeted $2.57, or 7.2 percent, to $33.22 per barrel, while West Texas Intermediate dropped $1.48, or 4.5 percent, to $31.50; both benchmarks are down about 50 percent from highs reached in January.
Edward Moya, senior market analyst at OANDA, remarked, “Global market carnage continues as Wall Street struggles to grasp how long the global pandemic will disrupt travel, trade and daily life;
The demand outlook seems like it will only get worse
Edward Moya, senior market analyst, OANDA
“Brent crude seems poised to sell off another 10 percent here as the demand outlook seems like it will only get worse.”
While some may argue that the panic over the coronavirus rather than the virus itself (whose effect is mild compared to past epidemics and pandemics) is to blame for the economic impact, the impact in itself is troubling: “Our initial assessment of the impact of cancelling transatlantic flights between the U.S. and Europe is a direct loss of about 600,000 barrels per day per month in jet fuel demand,” said Bjoernar Tonhaugen, head of oil markets at Rystad Energy.
Meanwhile, Saudi Arabia and Russia continued to advance their crude price war, the former reportedly moving quickly to boost output and the latter stating there is no point reducing output because it would be too little to compensate for the virus’s impact on global demand.
As a result, cheap supply coming onto the market from the Saudis and the United Arab Emirates also negatively affected crude prices on Thursday.
The double-impact of the coronavirus panic and the crude price war so far has caused North American oil and gas producers to slash their capital spending by about 30 percent on average, according to data compiled by Reuters.
Devon Energy, Apache Corp, and Murphy Oil Corp on Thursday became the latest to join a list of producers to slash their spending, the news agency reported.
Indeed, Securing America’s Future Energy (SAFE), which advocates reducing U.S. dependence on oil, believes the American oil industry is the loser from the current price war.
Robbie Diamond, president and CEO of SAFE, said, “Saudi Arabia claims to be the swing producer to stabilize the market, but mostly they just cause swings that hurt the free market and the ability to compete.”