Oil prices came close to hitting 20-year lows today, as Brent crude and West Texas Intermediate (WTI) dropped under the growing coronavirus economic panic.
Brent crude fell as low as $25 a barrel before falling 2.2 per cent down at $26.40. That is still a level not seen since 2003.
WTI, a US oil benchmark, eked out a 0.4 per cent increase to $22.72 per barrel. However, this is still one of its lowest levels since 1999.
Oil prices began their steep fall by crashing around 21 per cent earlier this month when Saudi Arabia and Russia started a price war.
Russia refused to countenance more production cuts to prop up the price of oil as the world’s coronavirus crisis led to global travel bans.
Saudi Arabia then flooded the market with cheap oil to safeguard its market share, a move later followed by the United Arab Emirates.
The fall in oil prices has been rapid, with Brent crude’s price having halved from $50 since February. And analysts have warned the price could fall further.
As a result, major oil producing companies have announced plans to reduce spending.
Royal Dutch Shell today said it will cut its full year capital expenditure by $5bn (£4.34bn) and suspend the next tranche of its share buyback plan.
Shares in the company rose 6.1 per cent to 1,127p today after steep falls on the back of coronavirus’ impact on oil prices.
Similarly, Total will cut its capital expenditure by 20 per cent and find additional cost savings of around $400m this year. Total’s shares climbed eight per cent by market close.
Wider picture for oil prices is uncertain
A report by Capital Economics has found the recent steep falls in oil prices have made the currencies of countries dependent on oil exports also drop.
The Canadian dollar and Norwegian Krone sunk as global demand for oil dried up amid coronavirus fears.
The US has also taken advantage of the falls to fill its strategic reserves although President Trump has hinted he could intervene in the price war to protect the US shale industry.
For UK drivers however there are benefits. UK supermarket Morrisons today announced a cut in fuel prices.
Supermarkets across the board had already reduced prices for consumers.