By Adedapo Adesanya
Oil prices continued in the low territory on Thursday, March 26, as the market reacted negatively to news that oil surplus could reach as much as 20 million barrels per day (mb/d) in the next few weeks.
With the deal signed by the now disbanded Organisation of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+ set to expire on Tuesday, March 31, it means oil producing countries can now pump at will.
This is, however, threatening not only to fill up storages in the world but will do that with cheap oil. In their bid for the share of the market, more producers will cut prices further and this might eventually shut in oil production for others.
On Thursday night, Brent crude, the global benchmark, dropped $1.34 or 4.5 percent to to trade down at $28.65 per barrel. As for the US benchmark, West Texas Intermediate (WTI) crude, it recorded a drop of $1.89 equivalent to 7.7 percent to sell at $22.60 per barrel.
The spread of coronavirus across the globe has led to shut down of business activities, causing decline in demand for crude oil amid a huge rise in supply. The drop in decline is caused by directives of governments on travel restrictions.
To help prices, oil producers from the United States, which is not a member of the OPEC alliance, are reported to be in talks with OPEC to cut production since its former allies walked out of the former proposed deal.
However, market analysts see the possibility of this helping oil prices which are charting around the $20 per barrel mark in the long run.
The market may take even worse turns in days to come as reports monitored by Business Post noted that the US Energy Department has suspended its plans to buy crude for the country’s Strategic Petroleum Reserve (SPR).
This came after the requested $3 billion in funding for the project was left out of the $2 trillion stimulus package for the American economy for current challenges that President Donald Trump and the US Senate agreed to on Wednesday. President Trump had earlier ordered the move to buy the oil.
Oil prices have shed more than 50 percent in the less than thirty days as prices continue to get hit on the demand side from the coronavirus outbreak, and on the supply side by a price war between OPEC+ nations including Saudi Arabia and Russia.
As prices continue to fall, companies are now taking measures including capital spending cuts, dividend reductions, and reduction of workforce.
Dipo Olowookere