NEW YORK (Reuters) – Oil prices extended their decline on Monday, with record low U.S. gasoline prices leading the energy complex lower, as the coronavirus pandemic crushes demand worldwide after travel and industrial activity contracted across the globe in a bid to stem the spread of the virus.
FILE PHOTO: The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. Picture taken November 22, 2019. REUTERS/Angus Mordant/File Photo
Brent crude LCOc1 futures fell 47 cents to $26.51 a barrel, a 1.7% percent drop, by 1:26 p.m. ET (1726 GMT). West Texas Intermediate (WTI) crude CLc1 futures for May delivery fell 4 cents, or 0.2%, to $22.59 a barrel.
Gasoline futures RBc1 in the United States, the world’s top consumer of the motor fuel, tumbled more than 20% to 46.74 cents a gallon, their lowest on record.
Both crude benchmarks have dropped for four straight weeks, with WTI slumping 29% last week, its steepest slide since the outset of the U.S./Iraq Gulf War in 1991.
The demand destruction from the coronavirus known as COVID-19 comes as the oil market contends with the unexpected price war that erupted between producers Russia and Saudi Arabia, effectively ending an OPEC+ alliance and flooding the market with barrels.
Oversupply is so extreme that regulators in Texas considered curbing production there for the first time in nearly 50 years. The United States plans to send a special energy envoy to Saudi Arabia to work with the kingdom on stabilizing the global oil market, U.S. officials said on Friday.
Bankers, analysts and producers are downgrading demand forecasts by the day, with numbers fluctuating around a loss of around 10 million barrels per day.
Oil demand this year will fall 2.8 million bpd, the largest single-year drop in nearly 40 years, Morningstar analysts projected.
“Given that COVID-19 is disproportionately affecting transportation demand, we think the hit to oil demand will surpass the GDP impact,” they said.
Refining margins for gasoline and jet fuel have tanked because of decreased demand for transportation fuels, as the pandemic has forced businesses to close and governments to push residents to avoid travel and public places.
Many oil companies have rushed to cut spending and shareholder payouts while refiners worldwide are slashing production or considering cuts as demand for fuel evaporates.
The physical market at Cushing, Oklahoma, the delivery point for WTI futures signaled heavy oversupply with prices to roll positions forward to the next month sinking to the weakest in nearly a decade.
The six-month spread of Brent futures LCOc1-LCOc7 hit its steepest since 2009 at a discount of around $9, a contango structure which reflects the current oversupply.
Oil prices have dropped more than 60% since the start of the year, while everything from coal to copper have also been hit by the coronavirus crisis, and bond and stock markets are in rarely charted territory. [MKTS/GLOB]
“Set against this dismal outlook, the downward spiral in oil prices is poised to continue and may well reach the mid-teens. Put simply, the search for a price floor is by no means over,” PVM analysts said in a note.
Swiss bank Julius Baer saw oil prices recovering to above $30 a barrel by mid-year, but added that they will likely continue to swing wildly in the very near term.
Additional reporting by Shadia Nasralla in London, Aaron Sheldrick in Tokyo; Editing by Marguerita Choy and Louise Heavens