Oil prices dropped more than $1 a barrel on Thursday as a growing number of virus-related restrictions on travel slashed global fuel demand, overshadowing expectations that a $2 trillion U.S. stimulus package will bolster economic activity.
The head of the International Energy Agency said worldwide oil demand could drop as much as 20 million barrels per day, or 20% of total demand, as 3 billion people are currently under stay-at-home orders due to the novel coronavirus outbreak.
West Texas Intermediate (WTI) crude CLc1 futures settled at $22.60 a barrel, falling $1.89, or 7.7%. Brent crude LCOc1 futures settled at $26.34 a barrel, shedding $1.05, or 3.8%. Both contracts are down about 60% this year.
The twin shocks of the coronavirus pandemic and the supply surge from Saudi Arabia and Russia after the two nations failed to come to an agreement to limit supply has roiled crude markets, which have lost about half their value in March.
“With demand down 20% or more globally, it’s two Saudi Arabias-worth of production that would need to be cut out to try to even attempt to balance this market,” said John Kilduff, a partner at Again Capital in New York.
U.S. futures were notably weaker than international benchmark Brent crude. The U.S. Department of Energy scrapped a plan to purchase domestic crude oil for its Strategic Petroleum Reserve (SPR) after funding was not included in the broader stimulus package.
“There was a certain assumption that it was going to happen so you had that backstop, to a certain degree, (for WTI) that didn’t exist for the international benchmark,” said Bob Yawger, director of futures Mizuho in New York.
The U.S. Senate unanimously passed the $2 trillion bill aimed at helping struggling workers and industries hurt by the impact of the coronavirus epidemic, and sent the legislation to the House of Representatives. The House is expected to vote on Friday.
The passage did little to ease investors’ frayed nerves.
“Oil is dead,” Gary Ross, founder of BlackGold Investors, wrote on Twitter. “International and domestic market seized up on too much oil. Sorry to say heading to single digits!”
The collapse of a supply-cut pact between the Organization of the Petroleum Exporting Countries and other producers led by Russia, known as OPEC+, is set to boost oil supply, with Saudi Arabia planning to ship more than 10 million bpd from May.
The twin shocks are rippling through the oil industry. The world’s top oil and gas companies have cut spending by about 20%, while oil refineries are cutting operating rates due to slack demand.
Brazil’s Petrobras said it was dialling back short-term production by 100,000 bpd, delaying a dividend payment and trimming its 2020 investment plan.