Oil slumps to lowest since 2003 on global recession threat

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SYDNEY (March 18): Oil briefly traded below its lowest settlement price in almost 17 years as the coronavirus pandemic threatens to bring the global economy to a standstill, battering demand just as supply explodes.

Futures in New York fell as much as 2.8% in the Asian morning, touching as low as US$26.20 a barrel, which would be the lowest close since May 2003 if prices settle at that level. Oil clawed back some of their initial losses but remain more than 15% weaker this week in the most volatile trading on record.

While policymakers around the world take unprecedented steps to shore up their economies from the fallout of the virus, the meltdown in oil demand and concurrent supply free-for-all by the world’s biggest producers continue to pull crude prices ever lower.

“I don’t think we have hit peak demand devastation yet,” said Stephen Innes, Asia Pacific market strategist at AxiCorp, who predicts oil may fall to US$18-US$20 a barrel. “If cases exponentially increase, especially in the US, its going to spook the hell out of oil traders.”

The market is finding little succor in global efforts to stem the economic fallout. The US Federal Reserve on Tuesday announced the restart of a financial crisis-era program in an effort to stem the economic impact from the virus. While US stocks rebounded from the biggest rout since 1987 on the plan, oil continued its slide as Saudi Arabia signaled its intention to ship a record 10 million barrels a day in April.

West Texas Intermediate for April delivery added 11 cents to US$27.06 a barrel on the New York Mercantile Exchange as of 10:33am in Singapore. Brent crude climbed 30 cents to US$29.03 after slumping 4.4% on Tuesday.

US gasoline prices recovered some ground after the biggest daily drop on Monday since 2005. The motor fuel was up 3.8% at 73.85 cents a gallon in light volumes on Wednesday.

The supply and demand shocks have hammered Wall Street’s outlook for oil. Goldman Sachs Group Inc said consumption is down by 8 million barrels a day and cut its Brent forecast for the second quarter to US$20 a barrel. Standard Chartered Plc predicted the low for the global benchmark crude will likely be well below US$20 next quarter, while Mizuho Securities warned prices could go negative as Russia and Saudi Arabia flood the market.

The rout amid ruthless competition between exporters has forced Iraq to urge OPEC and its allies to regroup for negotiations. Before OPEC+ talks collapsed earlier this month, Iraq had routinely disregarded the supply cutbacks it had promised. Now the producer has asked the cartel to hold a meeting to consider steps for re-balancing the global oil market as a massive glut emerges, according to a delegate.