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Oil futures are getting the week off to an ugly start, with the U.S. benchmark dipping below the psychologically important $20-a-barrel level to trade at an 18-year low Monday as the global COVID-19 pandemic crushes demand and a price war between Saudi Arabia and Russia floods the world with crude.
West Texas Intermediate crude for May delivery CLK20, -4.00% fell $1.17, or 5.4%, to $20.34 a barrel on the New York Mercantile Exchange after trading as low as $19.92. The global benchmark, June Brent crude BRN00, -5.30% was down $1.60, or 5.7%, at $26.35 a barrel. For the month to date, WTI is off more than 54%, based on the most active contract, while Brent is down nearly 47%. WTI is at its lowest level since February 2002, while Brent is hanging around its lowest since March of the same year.
“Saudi Arabia and Russia continue bickering, with neither showing any sign yet of backing down in their fight for a bigger share of a rapidly shrinking market,” said Marshall Gittler, head of investment research at BDSwiss, in a note.
Saudi Arabia on Friday said it wasn’t in talks with Russia on oil output levels, news reports said, despite calls by the Trump administration for the two countries to end their spat, which has spawned an oil rout that is seen adding to financial market and global economic turmoil alongside the pandemic. Moscow in early March rejected calls by the Organization of the Petroleum Exporting Countries for the cartel and its allies to increase existing production curbs. The Saudis retaliated by slashing prices and moving to boost output as the two countries, and other major producers, jockey for market share.
“The coming weeks will see unprecedented pressure on oil producers. But the market is collapsing so fast, that it is really more about the logistical challenge to place oil and shut in production in a smart way, rather than the financial impact,” wrote analysts at JBC Energy, a Vienna-based consulting firm, in a Monday note.
See: The world is running out of tanks to store oil as coronavirus and price war lead to flood of crude
Concerns that Saudi Arabia can’t beat the financial impact of the rout appear misplaced, the analyst said, arguing he kingdom could “theoretically be the last man standing, given financial reserves and the ability to borrow money if necessary.
“For pretty much everybody else in the industry, including U.S. shale and Canadian oil-sand companies, it is set to be a much more existential threat, with months of lower production at prices close to zero,” they said.
