Oil prices are continuing to suffer despite new supply cuts from OPEC and its allies. After a month-long price war that saw prices plummet to around $20 per barrel, Saudi Arabia and Russia decided to put things aside and try to restore some semblance of normality to the energy markets, which have also been devastated because of the coronavirus pandemic.
However, it seems that the damage done won’t be fixed anytime soon, and as the pandemic continues to grow, demand for oil has plunged more so than ever before. Prices have plunged by an extra 20% over this weekend, dipping down to a new low of $15 per barrel.
More specifically, prices for U.S. benchmark West Texas Intermediate dropped to as low as $14.47, the lowest seen in over two decades. International benchmark Brent crude is trading quite a bit higher, around $26.9 per barrel. A part of the reason for this difference includes record high supplies of oil in the U.S., although stockpiles around the world are already incredibly high.
Crude demand has never been weaker, having already ground down to new lows since international travel and tourism has been effectively halted. Even still, the demand for oil is expected to plunge by another 20% in the months to come. Making things even worse is the fact that due to the Saudi-Russian price war and the surge in oil output that was seen during that time, storage facilities around the world are essentially full.
With nowhere to store this oil, tankers are being topped up to the brim and sent into the ocean, floating aimlessly with no destination in mind. It’s definitely a weird situation that shows no sign of changing anytime soon due to this pandemic.
“The current prices show that the OPEC+ cuts proved to be a blip, with oil prices at the mercy of the virus once again,” adding that “Until we approach a lifting of the lockdowns in the U.S., oil may drift lower or remain rangebound around current levels,” said Vandana Hari, founder of the energy market research firm Vanda Insights. At this point, it’s uncertain whether further price cuts from OPEC would be enough to change the situation. The countries had collectively agreed to a 9.7 million barrel per day supply cut earlier, but prices have failed to recover at all.
Things have gotten so bad that the Railroad Commission of Texas, which is in charge of regulating the oil and gas sector in the state, might mandate output restrictions. Something like that would be unheard of for the organization, but is definitely possible considering the turbulent times we are in. There have also been rumors that the Trump administration might pay oil producers to keep crude oil in the ground as well, although this has yet to be confirmed.
In the end, those that will suffer the most from this will be smaller producers as well as those operating in high-cost regions. This includes most Canadian oil producers, which could very well go out of business if prices don’t get better anytime soon.