Oil prices show sharpest weekly decline since 2008

Andrew Cummings
March 18, 2020

Brent crude LCOc1 slipped 5 cents to $30.00 a barrel at 1157 GMT, having earlier touched $31.25. The global benchmark earlier fell to $29.52 a barrel, its lowest since January 2016.

The global price war has threatened to push supply to never-before-seen levels, according to IHS Markit.

The West Texas Intermediate for April delivery decreased 1.75 US dollars, or 6.1 percent, to settle at 26.95 dollars a barrel on the New York Mercantile Exchange, while Brent crude for May delivery was down 1.32 dollars, or 4.39 percent, to close at 28.73 dollars a barrel on the London ICE Futures Exchange.

While global storage capacity inclusive of the USA strategic reserve, at about 1,100 million barrels, could accommodate this surplus, the velocity of the upcoming inventory builds is now certain to overwhelm the ability to fill storage. Many forecasters have lowered estimates on crude demand, as the virus disrupts business activity, travel and daily life.

Saudi Arabia said last week it would launch a program to boost production capacity for the first time in more than ten years.

The Bank of Japan later stepped in by easing monetary policy further, while Gulf central banks also cut interest rates.

West Texas Intermediate Crude oil futures for April ended down $1.75, or about 6.1%, at $26.95 a barrel, the lowest settlement price since February 2016. USA crude output has grown in recent years to almost 13 million bpd, making it the world's largest producer. "Less crude availability in the U.S. is likely to reduce the WTI discount to Brent", Societe Generale analysts in a note to clients.

The United States has said it will take advantage of low oil prices to fill its Strategic Petroleum Reserve (SPR). The move is aimed to help energy producers struggling from the price plunge.

This "will enable the kingdom to increase its crude exports during the coming few months to exceed 10 (million bpd)".

The 2020 budget, which was signed by the President, Major General Muhammadu Buhari (retd.), in December, was based on oil production of 2.18 million barrels per day with an oil price benchmark of $57 per barrel.

United States gasoline prices recovered some ground after the biggest daily drop on Monday since 2005.

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