Oil prices fell for a third session on Wednesday to be down about 17% so far this week as the outlook for fuel demand darkened amid travel and social lockdowns triggered by the coronavirus epidemic.
Brent crude LCOc1 was trading down 43 cents, or 1.5 percent, at $28.30 a barrel by 0650 GMT, after dropping to $28.26 the lowest since early 2016. The international benchmark fell 4.3 percent on Tuesday. US crude Clc1 was down 47 cents, or 1.7 percent, at $26.48 a barrel, after falling as low as $26.20, also the lowest in more than four years. West Texas Intermediate fell six percent on Tuesday.
Drop in US inventories of crude, gasoline and distillates
A drop in US inventories of crude, gasoline and distillates, as reported by an industry group, provided some support to prices, but the demand outlook remains grim amid a price war among major producers.
"The oil demand collapse from the spreading coronavirus looks increasingly sharp," Goldman Sachs said in a note forecasting a fall in the price of Brent to as low as $20 a barrel in the second quarter, a level not seen since early 2002. The bank also expects a demand contraction of 8 million barrels per day (bpd) by late March due to the pandemic and an annual decline in 2020 of 1.1 million bpd, which it said would be the most on record.
Impact on oil demand is starting to show
In efforts to support economies, the world's richest nations prepared to unleash trillions of dollars of spending to lessen the fallout from the coronavirus outbreak, as well as imposing social restrictions not seen since World War Two.
The impact on oil demand is starting to show in official statistics with Japan's trade bureau saying on Wednesday that crude imports into the world's third-biggest economy fell 9% from a year earlier in February. Virgin Australia became the latest airline to shut down its international network with the suspension of all overseas flights, while Prime Minister Scott Morrison warned that the situation could last six months or more.
Price war has broken out
Also in Australia, Oil Search joined other energy explorers in slashing expenditure and new activity to cope with the fall in prices. Elsewhere, Iraq's oil minister pleaded for an emergency meeting between members of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers to discuss immediate action to help balance the oil market.
A price war has broken out amid the evaporation of demand after the collapse of an agreement on withholding supply between OPEC and major producers including Russia, a grouping known as OPEC+. Iraqi oil minister, Thamer al-Ghadhban, asked OPEC to help "urgently achieve" extraordinary meetings of the OPEC+ group to "discuss all possible ways" to rebalance the oil market.
"A deeply imbalanced supply and demand relationship will keep putting oil prices under pressure," said Margaret Yang, analyst at CMC Markets in Singapore. "Major oil producers are ramping up oil supply in a time when global demand is dampened by border controls and traffic bans."