A flood of cheap supply coming onto the market from Saudi Arabia and the United Arab Emirates compounded pressure on crude prices. The Gulf producers are throwing open the oil taps as part of a price war offensive unleashed by Saudi Araba after Russia refused to back deep output cuts to blunt waning demand as the coronavirus slows business around the globe.
Brent crude was down $2.83, or 7.9 percent, at $32.96 a barrel by 2pm Eastern Time in the US (18:00 GMT). US West Texas Intermediate (WTI) crude was down $1.85, or 5.6 percent, at $31.13.
Global equities plunged, and the Dow Jones Industrial Average was on course for its worst performance since Wall Street’s “Black Monday” crash of 1987, after Trump announced the travel restrictions.
Prices pared losses briefly after the Federal Reserve Bank of New York said it would inject $1.5 trillion in funding into short-term credit markets that banks rely on to fund day-to-day operations. But the bounce faded quickly across markets.
“Global market carnage continues as Wall Street struggles to grasp how long the global pandemic will disrupt travel, trade and daily life,” said Edward Moya, senior market analyst at OANDA in New York.
“Brent crude seems poised to sell off another 10 percent here as the demand outlook seems like it will only get worse.”
Global oil demand is set to contract in 2020 for the first time in more than a decade, with the International Energy Agency this week lowering its annual forecast by almost one million barrels per day (bpd), or one percent of global demand.
Demand in the first quarter has fallen sharply over the past year, mostly due to the impact of the virus on economic activity in China.
Both Brent and WTI are down about 50 percent from highs reached in January. They suffered their biggest one-day declines since the 1991 Gulf War on Monday after Saudi Arabia launched the price war.
The cost to transport oil on supertankers soared as major producers scrambled to secure vessels to ship more crude and companies looked for vessels for storage.
As Saudi Arabia moved quickly to boost output, Russia stuck by the decision that led last week to the collapse of its alliance with Riyadh and other producers. Moscow said that there was no point in cutting output because it would likely be too little to compensate for the impact on global demand of the virus.
For now, both sides are digging in for the price war, said Ehsan Khoman, head of Middle East and North Africa research and strategy at MUFG, a Japenese bank.
“We believe that both sides have enough financial capacity and sufficiently divergent goals to sustain the oil price war for many quarters, not months,” he said.
Saudi Arabia has already stepped up efforts to squeeze Russia’s Urals grade oil out of its main markets by offering its own cheap barrels to refiners worldwide that buy Russian crude, seven oil sources said.
With demand falling sharply and output rising quickly, the market is facing a big surplus in April. Estimates for the scope of the glut vary. It could be as much as six million bpd, said Kirill Tachennikov, director and senior oil analyst at BCS Global Markets in Moscow.