Brent crude extends fall as Covid-19 shutdowns sap demand

(Reuters) – Brent crude prices extended falls on Monday amid more action by governments to contain the global coronavirus outbreak that has slashed the demand outlook for oil and threatened a worldwide economic contraction.

Brent crude futures fell 65 cents, or 2.4%, to US$26.33 a barrel by 0328 GMT. West Texas Intermediate (WTI) crude futures were up 29 cents, or 1.3%, at US$22.92 a barrel, having fallen 2 percentage points more than Brent this year.

Oil prices have fallen for four straight weeks and have dropped about 60% since the start of the year. Prices of everything from coal to copper have also been hit by the crisis, while markets in bonds and stocks enter rarely charted territory.

The Tokyo Olympics became the latest potential casualty of the pandemic as Japan and the games organisers raised the prospect of a delay from the summer, while Canada announced it will not send athletes to the event.

The coronavirus, which has infected more than 325,000 and killed over 14,000 worldwide, has disrupted business, travel and daily life. Many oil companies have rushed to cut spending and some producers have already begun putting employees on furlough.

The market has had to contend with the twin shocks of the demand destruction caused by the coronavirus pandemic and the unexpected oil price war that erupted between producers Russia and Saudi Arabia earlier this month.

The current production cut deal expires on March 31. The gap between current levels and prices in six months widened to the highest in more than a decade as traders tried to find space to hold oil amid the contraction in prompt demand.

“Even if oil prices somehow manage to rebound a little more, oil is heading south as the demand destruction for crude will only get worse as more countries intensify their shutting down of non-essential business efforts and as storage space for crude runs out,” said Edward Moya, senior market analyst at OANDA.

Almost a third of Americans are now under orders to stay at home as states took extra measures to stem the rising numbers of cases in the world’s biggest economy, while in New Zealand Prime Minister Jacinda Adern said all non-essential services and business are to be shut down.

Demand is expected to fall by more than 10 million barrels per day (bpd), or about 10% of daily global crude consumption, said Giovanni Serio, head of research at Vitol, the world’s biggest oil trader.

Goldman Sachs estimated the demand loss could total 8 million bpd, brought about by countries slowing economic activity to combat the coronavirus outbreak.

Oil refiners worldwide are slashing production or considering cuts as the pandemic causes the evaporation of fuel demand.