Oil fell below $22 as the collapse in global consumption as a result of the coronavirus outbreak showed no sign of abating, pressuring refiners and producers globally.
Futures in New York fell as much as 4.5%. While global stocks staged a partial recovery this week as policy makers sought to cushion the blow from the virus, there have been more signs of a demand collapse. Mega-refineries from India to South Korea are slashing their consumption, while top trader Trafigura said it expects demand to plummet by 22 million barrels a day next month
Lower prices are already taking their toll, with producers facing forced production cuts for the first time in 35 years. Suppliers from Brazil to Canada are already acting, while Nigeria said it will pump as much as it can at low prices, but may have to shut in production. Algeria has asked for an emergency OPEC board meeting to discuss the cuts. It comes as one of the world’s largest supertanker owners said that ships are being filled with crude at a record pace, as land storage rapidly diminishes.
Physical crude prices are falling even lower than Brent and WTI futures. “We’ll all be writing about this time for the next 30 years,” said Paul Horsnell, head of commodities research at Standard Chartered. “Anybody who does barrel counting or has a supply demand model cannot close the huge surplus without a lot of supply being forced off.”
West Texas Intermediate fell 3.1% to $21.89 a barrel as of 8:55 a.m. in New York Brent crude lost 3.4% to $25.45 a barrel Swaps markets showed that physical crude is selling several dollars below benchmark prices.
In another bad omen for oil prices, the U.S. Energy Department was forced to rescind an offer to buy from shale producers to top up emergency stockpiles after President Donald Trump failed to win funding from Congress. The purchases would have targeted small to mid-size producers that have borne the brunt of the recent market meltdown.
The signs of storage starting to fill are growing too. Inland tanks for heating oil in Germany are now full up, while Pakistan banned oil imports on Thursday because its stockpiles are now sufficiently built up.