By Adedapo Adesanya
Crude oil prices dropped more than five percent on Monday, March 30, 2020, trading at the level last seen in the year 2002. This was heavily impacted by global restrictions on movements due to the COVID-19 outbreak.
On Monday night, Brent crude depreciated by $1.56 or 5.62 percent to to trade at $26.39 per barrel, while the West Texas Intermediate (WTI) crude plunged by $1.18 equivalent to 5.7 percent to $20.33 per barrel.
With over 776,000 coronavirus cases recorded across the globe, countries have activated lockdown, meaning no usual activities taking place, leading to fall in demand for petroleum products.
Last week Goldman Sachs analysts said that global oil demand could fall by as much as 18.7 barrels per day in April, higher than 10.5 million barrels recorded in the month of March.
However, this week, the bank has projected that the world’s oil consumption will plummet by 26 million barrels per day equivalent to 25 percent different from global demand before lockdown and social-distancing as the outbreak has now affected 92 percent of the world’s gross domestic product (GDP).
On the supply front, the Saudi Arabia and Russia induced price war is making it difficult for prices to rise as the world is facing an unprecedented amount of oil glut threatening to further harm prices from next month.
Traders now believe the surplus could approach 25 million barrels a day next month, a level that could fill up world storage facilities worldwide within weeks as major producers have revealed plans to pump more from April 1.
Analysts see that with this increase in output, oil prices might face such pressure that the hands of the market will have to adjust, meaning producers going back to the table or even shutting off production so that the stored crude can be sold.
Major crude benchmarks have recorded losses for five straight weeks and the price of oil is now too low that it is becoming unprofitable for many oil firms to remain active. Analysts said higher cost producers will have no choice but to shut production, especially since storage capacities are almost full.
Oil companies are also taking measures including capital spending cuts, reductions in dividends and labour to stifle the effect and even recent government intervention have not been able to cushion the worsening market.
Dipo Olowookere