NEW YORK/NEW DELHI :
Oil plunged to the lowest level since 1986 as the coronavirus pandemic ravaged global economies.
In New York, West Texas Intermediate (WTI) dropped by a staggering 43%, the most since the contract began trading in 1983, to $10.34 a barrel, the weakest level since 1986. The plunge was exaggerated as the May futures contract expires on Tuesday.
Economic activity has ground to a halt as governments around the globe extend shutdowns to stem the swift spread of the coronavirus. Oil has faced its own knock-on effects with a market massively oversupplied and nowhere to store physical barrels. Despite the unprecedented output deal by Organization of the Petroleum Exporting Countries (Opec) and allied members a week ago to curb supply, it’s become too little too late in the face of pandemic lockdowns reducing global crude demand by about a third.
“There is little to prevent the physical market from the further acute downside path over the near term," said Michael Tran, managing director of global energy strategy at RBC Capital Markets. “Refiners are rejecting barrels at a historic pace and with US storage levels sprinting to the brim, market forces will inflict further pain until either we hit rock bottom, or covid clears, whichever comes first, but it looks like the former."
The low energy price regime could put a majority of US shale oil producers out of business in the run-up to the US presidential elections in November.
“April is expected to be the bleakest month for the industry, with demand set to plummet by 29 million barrels a day compared with the same month last year," International Energy Agency said in a statement.
The depressed energy prices come despite the largest ever production cut by Opec plus, which includes Russia; thereby ending their high-stakes game of flooding the global markets amid the covid-19 pandemic.
With Opec accounting for 80% of India’s crude oil imports, any production cut by the so-called Opec plus arrangement impacts India’s energy security efforts in the short run.
“Stepping away from a destructive price war, the return to market management by Saudi Arabia and Russia backed by the US and a very involved President Trump, marks a physical and psychological inflection point for the oil market," Roger Diwan, vice president, financial services, IHS Markit added in a statement.
Oil prices had touched an all-time high of $147 per barrel in July 2008.
Low energy prices bring good tidings for major consumers such as India. But with the world’s second most populous country cooped indoors, there is hardly any demand for fuel.
The cost of the Indian basket of crude, which represents the average of Oman, Dubai and Brent crude, was $20.56 a barrel on 17 April, according to the Petroleum Planning and Analysis Cell.
The cost of the Indian basket of crude, which averaged $56.43 per barrel in 2017-18, registered an average of $54.563 in February. The cost was $33.36 in March.
India has been a proponent of affordable energy prices and made a case for the same at G20 energy ministers’ meeting earlier this month.
“The plunge in demand would be even more damaging for the industry and the millions of people it employs around the world without the historic recent steps announced by OPEC+ and G20 countries…. If production falls sharply, some oil goes into strategic stocks and demand begins to recover, the second half of 2020 will see demand exceed supply," the International Energy Agency statement added.
With global oil demand plunging due to the rapid spread of the deadly coronavirus, prices have been in a tailspin, giving an opportunity for India’s ambitious and costly Indian Strategic Petroleum Reserves programme.