Oil falls to below $20 per barrel as global stocks continue to fall

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oil prices

Tough times appear to be here to stay for the global markets. In addition to the stock market, which has tumbled significantly in March, other markets have been hard hit by the coronavirus pandemic as well. In particular, energy markets have been ravaged, not just to the virus, but also because of the ongoing pricing war between Russia and Saudi Arabia. Today, prices for oil have officially fallen below $20 per barrel, marking the lowest point seen in 18 years.

American benchmark West Texas Intermediate fell to $19.92 per barrel, losing more than 6% of its overall value. International benchmark Brent crude fell to just $23.02 per barrel, the lowest point its been at since 2002. Oil prices have tumbled by over 50% in the past month alone as quarantines across the world are reducing demand for oil significantly. Many analysts are suspecting that as much as 25% of the world’s normal oil consumption will be lost due to the effects of the coronavirus.

While low-cost producers are expected to weather the storm, those in traditionally high-cost areas such as Canada’s oil sands as well as U.S. shale producers are currently losing money at these prices. Although many will try to last as long as they can, hoping that other producers will go out of business first, the oil sector has quickly shifted to a war of attrition.

“Oil prices failed to keep pace, with growing (coronavirus) lock-down measures and reports that this could drive global demand down 20%, potentially pushing the world to run out of storage capacity,” commented Devin McDermott, an analyst at Morgan Stanley.

Overall, the Saudi-Russia price war shows little sign of slowing down. Ever since the Kremlin didn’t agree with the Saudi’s proposal to further reduce output in an effort to keep price above $50 per barrel, it appears that the Saudi government has adopted the opposite strategy to try and pressure the Russian government. Time will tell which side will back down first, but what is certain is that both countries are losing plenty of money due to this conflict.

At the same time, even if both parties agreed to cut oil production as originally planned, it’s unlikely that would restore oil prices fully. Both the U.S. and Europe continue to see further surges in the number of coronavirus patients. The total global case count has shot past 700,000, with America leading the way with over 140,000 cases. Italy is now second, with 97,000, while China, Spain, Germany, France are all 3rd, 4rth, 5th, and 6th respectively.

Industry analysts have warned that the U.S. oil industry, which has grown over the past few years to become the world’s top oil producer, is expected to shrink drastically due to these low prices. Although the U.S. government has put pressure on the Saudi’s to scale back their production, the kingdom has done little to respond. Although regular people are enjoying rock bottom gas prices for their cars and homes, the oil sector is likely to respond to these low prices with extensive layoffs. Now’s not really the time for investors to be betting on this sector, unless they are willing to wait potentially a long time and possibly lose money until things begin to turnaround.

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