Oil resumed declines after President Donald Trump said the U.S. would restrict travel from Europe for the next 30 days to try and contain the coronavirus, pummeling fuel demand even further.
Futures in London fell as much as 7% after being up shortly before Trump began a highly anticipated address on the White House’s response to the virus.
The president also called on Congress to pass immediate payroll tax relief, but he stopped short of offering a detailed economic rescue package. The briefing failed to soothe broader markets, with the global stock rout deepening.
Crude has lost around a quarter of its value this week as the deteriorating demand outlook due to the virus, which the World Health Organization has now deemed a pandemic, coincides with a price war between Saudi Arabia and Russia.
The battle for oil market share intensified Wednesday as Saudi Aramco announced plans to boost oil production capacity to 13 million barrels a day and Abu Dhabi National Oil Co. vowed to pump as much as possible next month.
“We are now staring at the whole world going into a lockdown,” said Vandana Hari, founder of energy consultancy Vanda Insights in Singapore. “Oil demand can be expected to crash through the floor and all previous projections on oil consumption are now out the door.”
As demand craters, Saudi Arabia is unleashing a wave of crude on Europe, traditionally the backyard for Russian sales, pledging to supply refineries with as much as triple their usual intake from the kingdom.
Russia’s low production costs, flexible tax system and free-floating ruble means its producers are able to respond, analysts from Bank of America Corp. to Raiffeisenbank said.
Brent crude for May delivery fell 5.4% to $33.87 a barrel on the ICE Futures Europe exchange as of 7:46 a.m. in London after dropping 3.8% on Wednesday.
West Texas Intermediate crude for April declined 4.9% to $31.35 a barrel on the New York Mercantile Exchange. It closed down 4% at $32.98 on Wednesday.
The Organization of Petroleum Exporting Countries slashed its oil demand growth forecast for this year on Wednesday by 920,000 barrels a day to 60,000. U.S. oil production is set to fall next year for the first time since 2016, the Energy Information Administration said, with the price crash already forcing drillers to cut back on capital spending.
The bearishness is reflected in the prompt timespread for Brent, which sunk to a contango of as deep as $1.50 a barrel, the most since 2015, a market structure that signals oversupply.
An index of volatility in WTI stayed close to record levels, while the premium of the global benchmark over main U.S. measure narrowed to $2.10 a barrel, near the least since mid-2017.
The U.S. travel restrictions are “only adding bearishness and taking away another supporting factor for oil,” said Peter Lee, a senior oil and gas analyst at Fitch Solutions.
“It’s quite hard to see a bullish factor for oil at this time, especially in the short to medium term.”
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