Oil's shocking crash drags prices toward worst week since 2008
Oil is set to end its most dramatic week in recent memory with the biggest plunge since 2008, as major producers prepare to drench the market with supply just as the coronavirus crushes demand.
While futures fluctuated on Friday, prices are down about 24% this week. The crash was triggered by the collapse of talks between members of the OPEC+ group. Instead of reaching a deal to cut output to mitigate the fallout from the virus, producers led by Saudi Arabia and Russia embarked on a war for market share and pledged to pump more.
Crude has also been roiled by turmoil across global markets, with investors uncertain if efforts by policy makers worldwide will be enough to tackle the economic impact of the spreading corononavirus. Apart from battering economies who are dependent on energy revenue, oil's collapse is also hitting U.S. shale producers by forcing them to cut spending and dividends.
The schism between Moscow and Riyadh is hardening with Russian oil producers planning to ramp up output next month, and no plans for a detente with Saudi Arabia. The kingdom said earlier in the week that it would boost output by more than 25% in April, while it sends a rush of crude to Europe, Russia's traditional market.
"The cancellation of OPEC's Joint Technical Committee meeting on March 18 sends a very clear signal that neither Russia nor Saudi Arabia are willing to blink just yet," Paola Rodriguez, senior market analyst at Rystad Energy, said in an email.
Oil has now been pushed to levels more volatile than the 2008 financial crisis. Gasoline prices were also rattled, falling by a fifth on Thursday as U.S. President Donald Trump issued a travel ban from Europe as part of an effort to contain the spread of the virus.
Trump is said to have plans to declare a national emergency on Friday over the coronavirus outbreak, invoking the Stafford Act to open the door to more federal aid for states and municipalities.
Meanwhile, the oil market's structure has already returned to a so-called super-contango, indicating a big oversupply.
"Demand is falling, refining margins are weakening, Saudi crude oil exports are surging: the super-contango is back," Petromatrix Managing Director Olivier Jakob wrote in a report. "It will be difficult for Saudi Arabia to regain control of the markets."
Global policymakers have so far been powerless to stem the coronavirus-driven rout that has threatened a global recession. Signs of stimulus in the U.S. came as House Speaker Nancy Pelosi said she's near an agreement with the Trump administration on a bill to mitigate the impact of the virus. Meanwhile the European Central Bank left interest rates unchanged, although it took steps to boost liquidity.
West Texas Intermediate was down 0.6% to $31.32 a barrel on the New York Mercantile Exchange as of 11:43 a.m. local time.
Brent crude slipped 0.2% to $33.17 a barrel on the ICE Futures Europe exchange; it's over 26% lower this week.
The global benchmark's premium to WTI reached as little as $1.09 on Friday, the least since late 2016.
