WTI crude oil futures plunged on Mar. 18 to around $20/bbl for the first time since 2002. Brent crude oil futures dropped to a 16-year low below $25/bbl.
Oil has been hit on both the supply and demand sides. Saudi Arabia and Russia are preparing to increase production, and a slowdown in global travel and business activity due to coronavirus is suppressing demand.
“The oil demand collapse from the spreading coronavirus looks increasingly sharp,” Goldman Sachs said, forecasting Brent crude prices to fall to $20/bbl in the second quarter, a level not seen since early 2002
As governments around the world urge residents to restrict gathering and isolate themselves, global oil demand may fall by as much as 8-9 million b/d by the end of March, Goldman Sachs said. The annual drop may reach a record-high 1.1 million b/d.
IHS Markit predicted oil demand in March and April would be reduced by 10 million b/d. Global oil supply surplus on a monthly basis could range from 4-10 million b/d from February to May, translating to an inventory build of 800 million bbl to 1.3 billion bbl in the first 6 months of the year.
“The last time that there was a global surplus of this magnitude was never. Prior to this the largest 6-month global surplus this century was 360 million bbl. What is coming will be twice that or more,” said Jim Burkhard, vice president of IHS Markit.
Abhi Rajendran, head of research at Energy Intelligence, said that the bottom of crude oil prices is likely to be $12 and very close to $10. In a week or two, an oversupply of more than 10 million b/d will be seen in the global market.
According to S&P Global Platts, the market hasn’t seen the worst. If there is no OPEC+ production reduction agreement reached by April, members can freely increase production with large supply hitting the market.
US crude oil inventories for the week ended Mar. 13, excluding the Strategic Petroleum Reserve, increased by 2.0 million bbl from the previous week, according to data from the US Energy Information Administration. At 453.7 million bbl, US crude oil inventories about 3% below the 5-year average for this time of year, the EIA report indicated.
The shale industry will face billions of dollars of debt defaults, and millions of people directly and indirectly employed by the shale industry are at risk of unemployment.
Reuters analyzed field data provided by consulting firm Rystad Energy and stated that only 16 US shale oil companies’ new well production cost is less than $35/bbl.