Covid-ravaged oil market collapses by a fifth in 2020

Covid-ravaged oil market collapses by a fifth in 2020

Europe's benchmark contract North Sea crude stood at $51.13 per barrel in mid-afternoon deals on Thursday

 Representative Image. Credit: Reuters Photo

World oil prices slumped by more than a fifth this year as deadly coronavirus savaged the world's appetite for crude, despite a vaccine-driven upturn at the end of 2020.

Europe's benchmark contract North Sea crude stood at $51.13 per barrel in mid-afternoon deals on Thursday. That was a hefty 22.5 percent lower than the same stage a year earlier.

The oil market had begun 2020 on the front foot, with prices rising as simmering tensions in the crude-rich Middle East region threatened to disrupt valuable supplies.

Oil spiked in early January, with Brent soaring as high as $71.75 after US President Donald Trump ordered the drone assassination of Iran's top general Qasem Soleimani.

Burgeoning Iran tensions stoked supply worries over the Strait of Hormuz -- a vital shipping lane for a fifth of global crude.

But prices were subsequently slammed by fallout from the escalating and deadly Covid-10 pandemic, with losses accelerating in March as nations implemented lockdowns and shuttered businesses to curb the spread.

Tightening restrictions slammed the brakes on demand from oil-intensive sectors like aviation, with planes grounded worldwide, while the world economy tanked into a downturn.

At the same time, the Organization of the Petroleum Exporting Countries (OPEC) faced a massive internal conflict.

Crude futures crashed on the back of a vicious price war between OPEC cartel kingpin Saudi Arabia and fellow producer Russia -- which is a key member of the enlarged OPEC+ grouping.

Russia refused Saudi Arabia's request to cut their collective output to counter the virus-fuelled slump in crude demand.

In response, top global exporter Saudi slashed its prices and raised output to preserve market share in the face of Russian opposition.

The price war, in tandem with the worsening pandemic, sent oil prices off a cliff -- and even caused New York's light sweet crude contract to briefly turn negative.

On April 20, West Texas Intermediate (WTI) crude collapsed to minus $40.32 per barrel -- meaning producers paid buyers to take the oil off their hands.

Brent spiralled as low as $15.98, plumbing depths not seen for more than twenty years.

Since those dark days, oil prices have recovered considerably but have yet to return to pre-pandemic levels.

The market rose strongly in November and December, aided by the development of several crucial Covid-19 vaccines that have sparked hopes of return to normality -- and a recovery in energy demand.

Prices were also given a shot in the arm after OPEC and its allies struck a deal in early December to increase production over coming months, but by less than anticipated in their previous accord.

In Thursday mid-afternoon deals, Brent crude dropped 0.7 percent to $51.25 per barrel from the prior day. New York's WTI crude was also 0.7 percent lower at $48.05.