"Toxic" Market Causes More Crude Losses As Analysts Predict Oil In The Teens

Meanwhile, U.S. shale producers slash budgets to combat market conditions: File Image/PixaBay

Panic once again governed the hearts and minds of crude traders on Tuesday as a “toxic” combination of the coronavirus’s impact on demand and Saudi Arabia and Russia engaging in a price war caused a 6 percent drop in oil.

West Texas Intermediate settled down $1.75 (about 6 percent) at $26.95 per barrel, and Brent ended the session $1.32 lower at $28.73 per barrel.

Pavel Molchanov, energy research analyst at Raymond James & Associates Inc., remarked, “Lockdowns around the world alone would be enough to trigger a bear market for oil; add in the collapse of OPEC+, those two create an unbelievably toxic combination.

This crisis is….the worst shock to global demand in modern history

Pavel Molchanov, Raymond James & Associates Inc.

“This crisis is shaping up to be the worst shock to global demand in modern history.”

Just as the virus in North America has yet to follow a peak already experienced in China, doomsday prognostications are still on the rise, with Nathan Sheets, chief economist at PGIM Fixed Income, telling media that “A sustained drop in oil prices would cost the sector 50,000-75,000 jobs if employment returned to its low from a few years ago.”

He went on to note that “During the downturn in 2015/16, U.S. employment in the oil sector fell by about one-third; in recent years, some of that has been clawed back, but a period of sustained low oil prices would no doubt push employment back toward previous troughs.”

Meanwhile, U.S. oil companies are not so much fixated on what-if scenarios as they are taking action to try and get through a dismal first half of 2020 as unscathed as possible: Hess Corp, Concho Resources Inc., and Callon Petroleum Co. on Tuesday followed oil major Exxon Mobil Corp in cutting their spending for the year.

According to Reuters, Hess, Concho, and Callon slashed their 2020 capital budget by about a quarter, and Callon will cut its rig count to five from nine before the end of the second quarter.

As for the ultimate trajectory of oil, Abhi Rajendran, director of research at Energy Intelligence, told CNBC that “Oil could easily be in the teens at the bottom – could even be low teens at the lowest.”

He added, “The main driver is for, a week or two, we could have global market oversupply of over 10 million barrels per day, which is insane and unprecedented.”

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