Oil prices jump US$1 as sharp falls draw investors, bargain buyers

Andrew Cummings
March 18, 2020

The North American price for a barrel of oil dropped below $30 USA on Monday as the prospect of a historic glut of crude weighed heavily on energy markets.

US West Texas Intermediate (WTI) crude fell $3.03, or 9.6 percent, to end at $28.70 a barrel, its lowest since February 2016.

With West Texas Intermediate crude oil now trading around $27 a barrel, this month's historic flush in oil prices has some financial experts concerned that crude will settle in a range under $40 a barrel, resulting in potential layoffs for the industry's hundreds of thousands of workers. Until now, the largest six-month global surplus since 2000 was from late 2015 to early 2016, when it was a cumulative 360 million barrels, it said.

Oil prices fell below $30 a barrel on Monday as the worldwide coronavirus outbreak worsened over the weekend, exacerbating fears that government lockdowns to contain the spread of the disease would spark a global recession. WTI crude at East Houston, a key price of oil delivered to Houston for exports, fell below the futures price for the first time on record.


"A deeply imbalanced supply and demand outlook has not changed as Saudi and Russian Federation have ramped up production in a time when global energy demand is badly hurt by border controls and travel bans", said Margaret Yang of CMC Markets.

"That is where the oil market now finds itself: in a truly extraordinary situation in what has been a transformative week for the global industry".

The number of rigs is expected to fall, however, as producers deepen spending cuts.

Oilfield services analyst Tim Monachello of AltaCorp Capital is forecasting a 31 per cent decline in the average working rig count in Canada for the rest of 2020 even if the USA oil price rebounds to an average of $41.50 United States per barrel.


New short-term operating plans need to be developed with the greatest urgency, assuming a further decline in the oil price possible to as low as $10 per barrel.

Nieboer of RS Energy Group, now part of Enverus, pointed to a couple of factors that likely contributed to falling crude prices on Monday.

Saudi Aramco has said it would likely carry over its planned higher oil output for April into May, and that it was "very comfortable" with an oil price of $30 a barrel. I do think that the gap above gets filled eventually, but we aren't near that yet.

"The combination of those two things, plus probably 50 other little pieces of information, makes today a hard day in the markets broadly, and certainly for oil markets, a tough one as well".


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