Brent crude has hit lows not seen in nearly two decades.
The global response to the coronavirus pandemic has led to a significant decrease in travel, resulting in a sharp decline in gasoline prices worldwide. With reduced land and air travel, the demand for gasoline, and consequently oil, has dropped, impacting the market.
On Monday morning, oil prices briefly fell below $20 per barrel before slightly recovering. Brent crude, which serves as the international oil price benchmark, experienced a $1.98 decrease, equivalent to a 7.9% decrease, settling at $22.95 per barrel. This is the lowest value Brent crude has seen since November 2002 when it dropped to $22.58. Meanwhile, U.S. West Texas Intermediate fared worse, losing $1.31, a 6.1% decrease, to reach $20.20 per barrel.
According to UBS oil analyst Giovanni Staunovo, the decline in global oil demand is a result of COVID-19-related travel restrictions and social distancing measures. Staunovo highlighted the possibility of oil prices needing to decrease further to prompt production shutdowns in order to prevent reaching storage capacity limits.
Many oil companies are currently operating at a loss due to the rock-bottom oil prices. Some major oil producers have even exhausted their storage capacity and are forced to halt production until they can offload their reserves. The situation is exacerbated by the ongoing price war between Russia and Saudi Arabia, as both countries are aggressively cutting prices and increasing exports in a bid to outdo each other. Analysts from Goldman Sachs warn that the impact of the oil price decline is so severe that the demand from commuters and airlines, typically at 16 million barrels per day globally, may never fully recover.
