Oil prices have again plunged further, as it sells for as low as $26 a barrel for the first time in almost 18 years.
This comes as both Saudi Arabia and Russia continue their price war, even though the Saudi Government has doubled down in earlier threat on flooding the market with more crude oil. The new oil prices is also way below the $57 benchmark in the 2020 budget of Nigeria.
Oil Prices since the outbreak of the coronavirus has been going down, with OPEC and non-OPEC members struggling to keep production quota, amid the drop in demand.
The first price shock was when Saudi Arabia first announced that it will flood the market with crude in a bid to recapture market share, after the implosion of an alliance between OPEC and Russia, which had been restraining oil supply since the start of 2017 in an attempt to support oil prices.
But according to the report obtained from Bloomberg, Saudi Arabia has been issuing nearly daily statements raising the stakes in its shock-and-awe battle with Moscow, first announcing record price discounts, then the unprecedented production, and is now vowing to flood the market.
The energy market has taken these as a green light to sell, sending prices down about 45% since a failed OPEC+ meeting this month.
Riyadh appears to be heading to Darwinian survival of the fittest for the energy industry, in which the highest cost producers, including U.S. shale companies and others like Brazil’s offshore fields, will suffer enormously. The Saudi Ministry of Energy “directed Saudi Aramco to continue to supply crude oil at a level of 12.3 million barrels a day over the coming months,” according to a statement.
Russia so far has suggested it’s prepared to absorb the pain, although for the first time on Wednesday the Kremlin said it would prefer higher prices. Yet, few in the oil market see either Moscow or Riyadh taking a u-turn.
“We see no easy way for Saudi Arabia or Russia to back down from their current positions,” Sen said in a note to clients.
West Texas Intermediate futures in New York fell as much as 12% to $23.60 a barrel, the lowest since June 2002. Oil is now cheaper than any time during the global financial crisis when the world economy largely came to halt for a few days.
Demand is in free fall, with some traders saying it could be dropping by more than 10% compared to last year.
In London, Brent futures plunged as much as 7.2% to $26.66 a barrel, the lowest since 2003. Gasoline, diesel and jet-fuel wholesale prices also fell.
In the physical market, the pain is enormous. The Mexican oil basket, which measures the price the country secures selling its crude overseas, fell to $18.78 a barrel on Monday. In Canada, the benchmark crude price for tar-sands producers, known as Western Canadian Select, plunged to $9.19 a barrel.
Saudi Arabia is “really testing everybody and building negotiating power,” said Per Magnus Nysveen, head of analysis at Rystad Energy A/S. “They will try and be as strong as possible and they’re also killing U.S. shale.”
The market is finding little succour from global efforts to stem the economic fallout of the fast spreading coronavirus.
The rout amid ruthless competition between exporters has prompted Iraq to urge OPEC and its allies to regroup for negotiations. Before OPEC+ talks collapsed earlier this month, Iraq had routinely disregarded the supply cutbacks it had promised. Now the producer has asked the cartel to hold a meeting to consider steps for re-balancing the global oil market, according to a delegate.