The vertiginous crash in the oil price gathered pace this morning, with the key US crude falling by nearly 20%.
Hopes late last week that positive factors could provide some support for prices have come to nothing as the market rout continues.
Reports of important investors piling out of oil have further depressed prices, and there are fears of a return to the negative territory seen last week, when traders and producers were, briefly, offering money to have crude taken off their hands.
Unprecedented price plunge
It had been hoped that the easing of restrictions in some European countries could bolster the price, as could US-Iranian tensions in the Persian Gulf, but this has so far failed to happen.
West Texas Intermediate (WTI) bore the brunt of the selling action this morning, falling 19.31% to $10.27, taking the price through the psychologically important $11 barrier. Brent crude, a benchmark used in more than half of oil contracts worldwide, was 3.4% down at $19.31.
To put the damage into perspective, one month ago, on 30 March, Brent traded at $22.76 and WTI at $20.09. At that point, the fall-out from the coronavirus outbreak was already hitting prices, as lock-down measures to control the disease affected demand for oil.
Three months ago, on 28 January, Brent changed hands at $59.51 and WTI at $53.48, while 12 months ago, on 29 April 2019, the respective figures were $72.04 and $63.50.
That means that, over the last year, Brent has lost more than 73% of its value and WTI is down more than 83%. This is an unprecedented price plunge and previous experience of falling oil markets provide little in the way of a guide.
The closest parallel would be with the crumbling of the price in the Eighties. From a recent peak of $36.80 a barrel in 1980 (priced in the dollars of that time, since when inflation has eroded money values) the price went into a steady decline, to $27.50 in 1985 and then a sharp drop to $14.40 in 1986. This caused serious problems in the oil industry and for petroleum producing states, but at least it took place over six years rather than a few months.
Prices remained in the doldrums for the rest of the century, hitting a low in 1998 of $12.80. The so-called Far East meltdown, when a number of previously fast-growing “tiger” economies hit trouble, thus undermining demand for crude.
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Countries “virtually shut down”
However, a tough package of production cuts by members of the energy cartel, the Organisation of Petroleum Exporting Countries (OPEC) steadied the market and Brent was back at $28.40 in 2000. OPEC is clearly hoping to repeat this feat and has announced production curbs, but the scale of the challenge is daunting. On 16 April, secretary general Mohammad Sanusi Barkindo said the coronavirus had dragged the global economy and, consequently, the oil market “into one of then most severe crises in recent history”. He added: