By Amrith Ramkumar and David Hodari
The oil crash deepened on Monday, sending prices to an 18-year
low in a stark demonstration of how the coronavirus is crippling
fuel demand and leaving consumers unable to take advantage at the
pump.
U.S. crude-oil futures slumped 6.6% to $20.09 a barrel, ending
the day at their lowest level since February 2002. The drop brings
their slide for the year to 67%, or $41. Oil enters the final
trading day of March on pace for its biggest percentage drops on
record for any month or quarter, according to according to a Dow
Jones Market Data analysis of figures going back to 1983.
The latest declines came after President Trump said he was
extending his administration's social-distancing guidelines to
fight the coronavirus for another 30 days through the end of April,
causing industry analysts to further lower their expectations for
fuel consumption. The pandemic has halted economic activity and
global travel, resulting in a historic drop in oil demand.
Typically when fuel prices plummet, consumers drive more,
helping the energy sector recover. That process can't occur due to
the restrictions on travel and movement in place around the world
to fight the virus, leaving traders to project a massive surplus of
oil and even lower prices ahead.
"The longer the stay-at-home-orders are in place, the worse it
gets," said Andy Lipow, president of Houston-based consulting firm
Lipow Oil Associates. "The demand door was slammed shut into the
face of the oil industry."
While U.S. crude futures are near $20, regional prices in places
like Midland, Texas, are even lower, underscoring the existential
threat facing energy producers around the world. The slide is set
to dent economic growth for emerging markets from Saudi Arabia to
Brazil, potentially exacerbating the fallout from the
coronavirus.
As the disease slashes millions of barrels a day from oil
consumption, a price war between Saudi Arabia and Russia has made
the rout even more painful. The world's leading energy exporters,
along with the Organization of the Petroleum Exporting Countries,
weren't able to reach a deal to lower supply earlier this month and
are now set to make a global glut even bigger.
To help protect U.S. energy producers, the Trump administration
is considering intervening in the Saudi-Russian oil-price war, and
Texas regulators are weighing whether to curtail crude production
for the first time in decades, The Wall Street Journal reported
earlier this month.
Shale producers Pioneer Natural Resources Co. and Parsley Energy
Inc. sent a letter Monday requesting that the Railroad Commission
of Texas hold a hearing on the idea of curbing crude production,
The Journal reported.
In an interview with "Fox & Friends" on Monday, Mr. Trump
said, "we don't want to have an industry that's wiped out" and that
Saudi Arabia and Russia "both went crazy."
"I never thought I'd be saying that maybe we have to have an oil
[price] increase," he added. He had for years called for lower fuel
prices.
The president later in the day held a call with Russian
President Vladimir Putin in which the two agreed on the importance
of stability in global energy markets, White House deputy press
secretary Judd Deere said in a statement.
Shares of U.S. energy companies rose alongside the broader stock
market on Monday, but the S&P 500 energy group is still down
52% for the year, erasing hundreds of billions of dollars in market
value from shale producers. Many companies -- including Exxon Mobil
Corp., Pioneer and Parsley -- have pledged to cut spending in
response to the crisis.
Monday's slide in crude reflects a new view that even cutting
supply might not be enough to boost oil prices with the
transportation industry at a standstill. Brent crude, the global
gauge of oil prices, fell 8.7% to $22.76 a barrel, another signal
that a longer economic shutdown could batter the oil patch even
more.
"As the tail of Covid-19 gets fatter, more analysts are going to
have to bring down their oil-demand numbers for May and June," said
Edward Marshall, a commodities trader at Global Risk Management.
"At that point, we could see sub-$20-a-barrel Brent."
Industry analysts say there is a limit to how much oil can be
stored in the U.S. and in tankers around the world, one that could
be reached if the amount of crude stockpiled continues surging. As
that process continues, it should keep prices under pressure,
traders say -- even if producers begin holding back supply.
"The potential supply shortage which will be caused by producers
shutting in production will not be enough, and I don't think it
will have any price supportive action in the next three months,"
said Tamas Varga, an analyst at brokerage PVM Oil Associates. "All
in all, the situation is dire."
Catherine Lucey contributed to this article.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com and David
Hodari at David.Hodari@dowjones.com
(END) Dow Jones Newswires
March 30, 2020 18:39 ET (22:39 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.