Crude oil price sinks to 16-year low of $26 per barrel

On fears of a global recession as Covid-19 wrecks havoc across the world

Already battered by the Russia-Saudi Arabia oil price war, Brent crude oil sank to a 16-year low of $26 per barrel on Wednesday as the coronavirus-led demand destruction exacerbated global economic recession fears.

This is the lowest of the international benchmark for crude since September 2003, compared to the high of $147 per barrel in 2008.

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The crash in prices came hours after Goldman Sachs cut the price forecast for Brent crude oil to $20 a barrel for the quarter ending March 31 on the back of a drop in global demand hit by coronavirus epidemic.
Crude oil continued to be hit, both on-demand and the supply side escalating concerns about the outlook for energy demand across the world including India. India is the world’s third-largest crude oil importer.

“It is a combination of heightened concerns over falling demand and excess supply that is leading to crash in prices,” Kavita Chacko, Senior Economist at Care Ratings told DH.

While such a sharp plunge in prices will impact oil producers across the globe, the demand slowdown is expected to hit the financials of oil marketing companies in India. But the government stands to gain by raising duty on oil.

It also gives India, a net importer of crude oil to shore up its strategic reserves for a rainy day.

However, consumers do not stand to benefit much because pump prices have not changed majorly in the past 10-odd days since the oil prices sank.

Oil prices plunged to $45 on March 6 after Saudi Arabia announced an increase in production as talks with an OPEC plus member Russia on cutting output failed. On March 8, it collapsed to $30 per barrel.

The Crisil Research, however, has put the average price of Brent crude in between $35 and $40 per barrel in 2020, with downside risk.

In India, the demand slowdown has led to a 15% drop in sales at petrol pumps across the cities. The drop in sales is the worst at 20% in Delhi, according to All India Petroleum Dealers Association President Ajay Bansal.

“The decline in crude oil prices would help to further contain the oil import bill, but the underlying triggers hold adverse implications for export demand and remittances. “ said Aditi Nayar, Principal, Economist, ICRA.