The global economy and the oil industry continue to be dominated by the coronavirus pandemic. With more countries, especially the economically advanced oil-consuming ones, going into some form of lockdown every day, the world’s oil consumption is now believed to be down by nearly 25 percent. Oil prices declined for a fifth straight week from collapsing demand due to the virus and increasing supply from producers vying for market share. Brent crude settled down 8 percent for the week at $24.93 a barrel, and US crude settled down more than 3 percent during the week at $21.51 a barrel. US oil futures now have fallen 65 percent this year and are on pace for the most painful quarter since at least 1990.
The market situation changed rapidly last week. On Monday, the oil traders were focused on the Saudi price war. By week’s end, however, the Saudi initiative had been overshadowed by the rapid spread of the coronavirus and its impact on oil demand. Rapidly falling demand resulted in a week of unprecedented volatility before oil prices settled on Friday at $22.43 in New York and $26.98 in London.
Global oil consumption is in free-fall, heading for the biggest annual contraction in history, as more countries introduce unprecedented measures to fight the coronavirus outbreak. Travel bans, work-from-home, canceled vacations, and disrupted supply chains across the world all mean reduced demand for fuel. As societies respond to the virus, oil demand — already hurt by China’s shut down of parts of its economy — is falling further.
Last week saw upheavals in the financial and energy markets as the coronavirus continues to spread rapidly across the world and the OPEC+ production limiting agreement broke down. OPEC responded by removing all limits on its own production. At week’s end, New York oil futures were down to $41 a barrel and London was down to $45 after Brent suffered its biggest one-day loss in more than 11 years on Friday.
As the coronavirus epidemic spreads to some 60 countries, the outlook for the oil industry and, indeed, the global economy is undergoing a sea change. Oil prices and equities are dropping rapidly as transportation and business activity is already being curtailed in many parts of the world. Brent futures settled at $50.52 Friday, down $7.98 on the week, and down 22.5 percent since January 20, when the commodities markets began reacting to the virus. Forecasters are lowering their estimates of how much the growth in oil demand will fall this year, and some are suggesting that demand may even contract. The IEA has the growth in the need for oil down to 825,000 b/d, but this could turn out to be optimistic.