Oil falls below $22 as global demand capitulation deepens from coronavirus outbreak

By Alex Longley and Ann Koh

Oil fell below $22 as the collapse in global consumption as a result of the coronavirus outbreak showed no sign of abating, pressuring refiners and producers globally.

Futures in New York fell as much as 4.5%. While global stocks staged a partial recovery this week as policy makers sought to cushion the blow from the virus, there have been more signs of a demand collapse. Mega-refineries from India to South Korea are slashing their consumption, while top trader Trafigura said it expects demand to plummet by 22 million barrels a day next month

Lower prices are already taking their toll, with producers facing forced production cuts for the first time in 35 years. Suppliers from Brazil to Canada are already acting, while Nigeria said it will pump as much as it can at low prices, but may have to shut in production. Algeria has asked for an emergency OPEC board meeting to discuss the cuts. It comes as one of the world’s largest supertanker owners said that ships are being filled with crude at a record pace, as land storage rapidly diminishes.

Physical crude prices are falling even lower than Brent and WTI futures. “We’ll all be writing about this time for the next 30 years,” said Paul Horsnell, head of commodities research at Standard Chartered. “Anybody who does barrel counting or has a supply demand model cannot close the huge surplus without a lot of supply being forced off.”

Prices:

West Texas Intermediate fell 3.1% to $21.89 a barrel as of 8:55 a.m. in New York

Brent crude lost 3.4% to $25.45 a barrel

Swaps markets showed that physical crude is selling several dollars below benchmark prices.

In another bad omen for oil prices, the U.S. Energy Department was forced to rescind an offer to buy from shale producers to top up emergency stockpiles after President Donald Trump failed to win funding from Congress. The purchases would have targeted small to mid-size producers that have borne the brunt of the recent market meltdown.

The signs of storage starting to fill are growing too. Inland tanks for heating oil in Germany are now full up, while Pakistan banned oil imports on Thursday because its stockpiles are now sufficiently built up.

Other oil-market news

Global oil demand will slump by 17.4m barrels a day in April from a year earlier, industry consultant FGE said in a note.

The world’s oil tankers are being filled with crude at a record pace as the options to store a glut on land rapidly diminish, one of the industry’s largest owners said.

Canadian heavy crude has become so cheap that the cost of shipping it to refineries exceeds the value of the oil itself, a situation that may result in even more oil-sands producers shutting operations.

Russia’s average oil production is little changed so far in March, the final month of the OPEC+ deal, as the nation prepares to ramp up output.

--With assistance from James Thornhill.