Oil price dips below $30 for the first time since 2016
Further losses predicted as recession fears grow
A rally in oil prices appears increasingly unlikely, as both Saudi Arabia and Russia refuse to back down in their price war and the world’s largest economy, the United States, grinds to a halt due to Covid-19.
By late-afternoon trading (GMT) both Brent and West Texas Intermediate (WTI) crude oil futures stand up 0.27 and 0.73 per cent respectively at $30.13 and $28.91 per barrel.
However, with both leading benchmarks dipping below $30 in Tuesday trading – for the first time since 2016 – a sustained recovery is doubtful.
Widespread shutdowns in China, the virus’ country of origin, led to a slump in oil demand and a subsequent price war between the commodity’s two largest exporters Saudi Arabia and Russia after failing to agree to production cut proposals.
With the Chinese economy expected to experience its first quarterly contraction since the death of Chairman Mao in 1976; Western Europe in effective lockdown and the United States now bracing for a potential recession, demand for oil is not expected to rise any time soon.
Indeed, after two weeks of historic market volatility and only the beginning of the novel coronavirus’ spread throughout the United States, Washington is taking advantage of the low oil price to prepare for a potential economic downturn. The US announced this week its intention to fill its Strategic Petroleum Reserve (SPR), with other nations set to follow suit.
The head of oil markets at IHS Markit, Jim Burkhard, recently observed: “The last time there was a global surplus of this magnitude was never.”
With neither Mohammed Bin Salman nor Vladimir Putin backing down and the world’s leading economies in freefall, oil’s 54 per cent loss on the year-to-date could soon be extended.
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