NEW YORK: Brent crude fell below $30 a barrel on Tuesday to its lowest since 2016, as the coronavirus pandemic hits economic growth and oil demand while Saudi Arabia and Russia keep up their battle for market share.
Countries including the United States and Canada, along with nations in Europe and Asia, are taking unprecedented steps to contain the virus, curbing demand for crude and products such as gasoline and jet fuel.
Brent crude LCOc1 futures fell 22 cents, or 0.7pc, to $29.85 a barrel by 11:42 a.m. EDT (1542 GMT).
The US crude benchmark, however, diverged from Brent and was modestly higher. West Texas Intermediate (WTI) crude CLc1 futures rose 5 cents to $28.75 a barrel. It has slumped more than 50pc since Jan 2.
Amid the loss of oil demand because of the pandemic, Saudi Arabia and Russia are embroiled in a price war that erupted after the two top producers failed to agree to extend supply curbs to support the market.
The Saudi energy ministry said on Tuesday that the kingdom’s crude exports are set to rise in coming months to more than 10 million barrels per day, as it plans to use more gas for power rather than burning crude.
“There is still every sign of a price war on the oil market,” said Commerzbank analyst Carsten Fritsch.
“If the announced production increases are actually implemented, the price risks plunging further toward the $20 mark.”
Brent’s premium over WTI WTCLc1-LCOc1 has narrowed sharply to 67 cents a barrel, reaching levels not seen since November 2016.
Brent, the international benchmark, reacts more to supply from non-US producers, so the anticipated increase in output from Saudi Arabia and Russia has hit that benchmark harder than WTI.
When that premium – also known as the arbitrage – narrows, US exports become less attractive because of the cost of shipping them great distances.
“The lower priced Brent will be attracting additional cargoes toward Europe while the comparatively high priced WTI will be enticing imports into the US while at the same time, curtailing export activity as the Saudis attempt to re-gain some long lost market share,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, in a report.
The United States has said it will take advantage of low oil prices to fill its Strategic Petroleum Reserve (SPR). Other countries and companies are planning similar measures to fill storage tanks.
Rates to store oil at the world’s main trading hubs from Japan to South Africa and the United States are surging as millions of unconsumed barrels of oil hit the market daily.
Attention will focus on weekly US inventory reports that are expected to show crude inventories rising for an eighth straight week. The American Petroleum Institute releases its supply report at 2030 GMT, with US Energy Department figures due to be published on Wednesday.