International Oil Prices Fall Below $20... WTI Hits Lowest in 18 Years

Saudi Arabia's Production Increase Next Month, Further Decline Inevitable

[Asia Economy Reporter Kwon Jaehee] At the beginning of this year, international oil prices maintained around $60 per barrel, but they plunged to the $10 range within three months, marking the lowest level in 18 years. Due to the global demand plummeting amid the impact of the novel coronavirus (COVID-19) and the high likelihood of Saudi Arabia increasing production starting from the 1st of next month, further declines in international oil prices are inevitable.

According to Bloomberg on the 29th (local time), West Texas Intermediate (WTI) crude oil on the New York Mercantile Exchange (NYMEX) traded as low as $19.92 per barrel during the session, down $1.59. This is the lowest since November 2001. On the same day, Brent crude for May delivery on the London ICE Futures Exchange also fell $1.90 to $23.03 per barrel during the session.

The biggest factor behind the plunge of international oil prices to the $10 range per barrel is the sharp decline in demand across the board, including jet fuel, due to COVID-19. Bloomberg reported that jet fuel consumption dropped to 5 million barrels per day due to the collapse in passenger demand in the aviation industry caused by COVID-19. This represents a 75% decrease compared to before the COVID-19 outbreak.

Movement restrictions to curb the spread of COVID-19 have also contributed to the demand drop. According to the U.S. Energy Information Administration, American drivers are the largest single demand source, consuming over 9 million barrels per day. The report analyzed that "stay-at-home orders issued in New York and California, where gasoline demand is high, have led to a decrease in fuel demand."

The chicken game between Saudi Arabia, the world's largest oil producer, and Russia is also fueling the sharp drop in international oil prices. Earlier this month, after Russia rejected OPEC's request for production cuts, Saudi Arabia responded by announcing it would increase daily production to over 12 million barrels starting April 1. Unless a dramatic agreement is reached between the two countries, the production increase is inevitable.

Most forecasts suggest that international oil prices will continue to decline. Some even mention the possibility of negative oil prices. Mercuria Energy Group, a commodity trading company, auctioned Wyoming crude oil for asphalt at -19 cents per barrel. This situation, where storage costs exceed the oil price, led oil producers to engage in a 'fire sale' of crude oil. Goldman Sachs predicted that Brent crude prices will fall to $20 per barrel in the second quarter.