Oil Prices Continue to Plummet

Crude oil futuresOn Wednesday the price of Brent crude fell to $26.01 per barrel its lowest level since September 2003. U.S. WTI futures dropped to $22.73 per barrel, their lowest levels since March 2002. The declines were prompted by continued reductions in demand thanks to closures due to the coronavirus, as well as the price war between Saudi Arabia and Russia. Though analysts have suggested that the decline of oil prices cannot continue for the long term, neither side is ready to negotiate, and the price war is expected to drag on throughout most of 2020.

Oil futures were broadly higher on Thursday afternoon but still painfully low for traders. U.S. WTI futures were sitting at $22.65 per barrel and Brent futures were at $26.19 per barrel. In a rare joint statement, OPEC and the International Energy Agency (IEA) warned that oil income in developing countries could fall to their lowest levels in more than two decades if market conditions continue as they are now. On Monday, organizational leaders expressed “deep concerns” about the impact of COVID-19 on the markets.

Still Saudi Aramco, the state-owned oil producer in Saudi Arabia, has suggested that it is comfortable with the price of oil remaining near $30 per barrel. Russia has commented that it can withstand lower prices for as long as a decade and that it has no intention of backing down. The IEA has warned that Saudi Arabia has more to lose than Russia, adding that all OPEC producers may be especially hard-hit by the lower prices. Other analysts, however, such as Stephen Brennock from PVM Oil Associates, believe that Saudi Arabia is committed for the long term and will not bend to Russia’s threats.

Adding to the problems, adds Bank of America analysts, is the problem of global storage that may arise due to the increased production by oil titans. BOA analysts say that production is likely to increase by 4 million barrels per day, but that it could be as much as 10 million barrels per day. “In a severe scenario, if the market struggles to find a home for surplus barrels then oil prices might have to trade down into the teens in order to shut in oil production,” they added.

Sari Holtz

Sari Holtz began working at DailyForex in 2011 when she was hired to provide daily news analysis and to manage the daily content. Since then, she has continued to provide regular news items that focus on how political events impact the global economy. She also works directly with dozens of Forex brokers worldwide to ensure that they get their messages across and that traders can find the best broker for their individual needs.