Adedapo Adesanya
By Adedapo Adesanya
With travel restrictions and quarantines accelerating, major crude futures fell more than 13 percent on Wednesday as the bearish outcome added to fear of a looming recession.
Brent crude dropped 6.54 percent or $1.99 to trade at $28.42 per barrel, while the West Texas Intermediate (WTI) crude fell by 16.25 percent equivalent to $4.44 to add more worries to the United States economy at $20.83 per barrel.
The coronavirus pandemic has caused global travel to collapse affecting oil which is a major commodity that powers the economy. But as flights have been cancelled. Shipping, transportation, and manufacturing are also feeling the hard-hitting outcome of the outbreak.
Making matters worse, Russia and Saudi Arabia, after a bid to stabilise prices and cap supply, ended up at loggerheads.
Russia refused to cut production, in a bid to compete with the US shale producers by flooding the market with cheap crude. Saudi Arabia then responded by slashing prices and ramping up production, the opposite of what was needed to balance the market.
Meanwhile, following the failed attempt to reach an agreement to further curb oil production, current production cuts by the Organization of the Petroleum Exporting Countries and its allies, OPEC+, are set to expire at the end of this month meaning countries are free to pump at will.
This will now add to an already existing oversupplied market, as the oil glut in the face of falling demand will worsen prices as many analysts have discovered.
On Tuesday, Goldman Sachs said that in 2020, oil demand will shrink by 1.1 million barrels per day, hitting a low in March when demand could plunge by 8 million barrels.
On its part, Rystad Energy on Wednesday projected a plunge of 2.8 million barrels per day in 2020. This is four times more from the energy firm’s previous call for a drop of just 600,000 barrels per day. April demand alone is likely to fall by 11 million barrels per day, Rystad explained.
It was stated that jet fuel is the biggest problem, with airlines around the world cancelling flights and parking planes because of travel restrictions. Global commercial air traffic according to Rystad’s projection will drop by about 20 percent this year.
