By Adedapo Adesanya
Oil prices fell on Tuesday as a historic production cut agreed over the weekend was overshadowed by the coronavirus pandemic’s impact on the global economy, heightened by new projections of a global recession.
As a result, the already pressured oil futures dropped more than six percent as prices charted in their territory before news of a meeting to end an oil price war that was heavily impacted by the COVID-19 outbreak.
On Tuesday night, Brent crude, the global benchmark, dropped $1.64 or 5.17 percent to trade at $30.10 per barrel. As for the US benchmark, the West Texas Intermediate (WTI) crude, it plunged by $1.69 or 7.54 percent to $20.72 per barrel.
One of the other things that impacted negatively on the market yesterday was a report by the International Monetary Fund (IMF), which projected that the global economy will shrink by three percent this year as a result of the COVID-19 pandemic, before experiencing a partial rebound next year.
The report said with the impending recession, the world is likely to lose a cumulative $9 trillion in output over two years.
The IMF also predicted that the price of crude oil will be slow to recover in 2020 and 2021. For oil exporters, this means lower revenues and growth.
Oil prices have declined as much as 64 percent this year as the coronavirus pandemic has slowed demand.
On the demand side, over the weekend, the Organisation of the Petroleum Exporting Countries (OPEC), and a group of other oil producers agreed to slash production by 9.7 million barrels per day, the largest-ever coordinated output cut but due to sharp drop in oil consumption over measures to curb the spread of the disease, prices returned to negative levels.
Even though the cut will start next month, it didn’t meet expectations to drive prices higher as things took a turn when Saudi Arabia’s oil giant Aramco set the May price for its Arab light crude oil to Asia at a discount of $7.3 to the Oman/Dubai average, down $4.2 a barrel from April, according to a document seen by Reuters.
In another report, it was disclosed that Saudi Aramco again cut official selling prices of all four grades to new record lows from Egyptian port of Sidi Kerir for May, in line with big cuts in prices for other customer regions, which has been considered a quiet restart of the price war.
Also further telling on prices on Tuesday, the American Petroleum Institute (API) estimated on Tuesday another large crude oil inventory build of 13.1 million barrels for the week ending April 10. In the previous week, the API estimated a large build in crude oil inventories of 11.9 million barrels, while the Energy Information Administration (EIA) estimates a build of 15.2 million barrels for the week.
Builds such as these are not good for a market under demand pressure and fear of oversupply.
Dipo Olowookere