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The numbers: A price war between Russia and Saudi Arabia drove the cost of oil sharply lower in March and triggered the biggest decline in U.S. import prices in more than three years, delivering a big blow to American energy producers even before the coronavirus pandemic added to their woes.
The price index for U.S. imports sank 2.3% last month to mark the largest drop since early 2015 — the last time falling oil prices hurt the energy industry.
Excluding energy, import prices were flat.
What happened: The cost of imported oil slumped a whopping 27%, reflecting the biggest drop since November 2008 during the global financial panic. Prices had also fallen 9% in February.
Russia and Saudi Arabia have flooded the global energy market with oil after disagreeing on production limits. The dispute has sent oil prices tumbling.
The cost of West Texas intermediate crude CL.1, -3.43% stood at $21.33 a barrel in recent trades, about one-third of its price at the end of 2019. The last time it was that low was more than a decade ago during the Great Recession.
As a result, U.S. import prices have slid 4.1% in the past 12 months, the sharpest pullback in almost four years.
Import prices were flat minus fuel, but it’s unlikely to stay that way. The pandemic has severely disrupted international trade, for one thing, and declining economic activity will probably force many suppliers to cut prices in order to attract buyers.
The March report on import prices was conducted in the first week of the month before the COVID-19 crisis fully emerged. The effect of the pandemic is not expected to show up until the April report, although the Bureau of Labor Statistics noted that the response rate to its survey was 6.5 points lower compared to the same month one year earlier.
Big picture: Sinking oil prices used to be a great thing for the economy, but that’s no longer the case now that the U.S. is the largest energy producer in the world. Low prices have battered U.S. energy producers, forced them to scale back investment and could cost tens of thousands of jobs.
And that was even before the coronavirus pandemic struck.
The viral outbreak has forced many nations to order citizens to stay at home, limiting how much they drive. That’s also putting downward pressure on prices, so energy producers are probably in for a long struggle.
Market reaction: The Dow Jones Industrial Average DJIA, +2.57% and S&P 500 SPX, +2.60% were set to open higher in Tuesday trades.
