US oil price tumbles as coronavirus gloom returns to energy market
US oil prices have tumbled as doubts set in about the country’s plan to reopen its economy and investors question whether cuts to supply will be enough to meet the plunge in demand caused by the coronavirus pandemic.
West Texas Intermediate crude oil – the benchmark for the US market – had fallen 8.2 per cent by mid-morning UK time to $18.25 per barrel. The international benchmark Brent crude was up just 0.1 per cent at $27.85 per barrel.
The fall came after dire Chinese economic data underlined coronavirus’s effect on global growth. The world’s second-largest economy shrank 6.8 per cent in the first quarter, figures showed today.
Doubts also settled in about US President Donald Trump’s strategy for reopening the economy.
Trump last night rolled out guidelines that said it states should have a “downward trajectory” of cases for 14 days before reopening. But some social distancing measures would stay in place, which would prevent many businesses from operating normally.
The President’s remarks were more cautious than many expected and suggest lockdown measures could remain in place for months in some areas.
A longer lockdown would further reduce demand for oil. Meanwhile, the US remains the world’s biggest producer as other countries cut their output, adding to the supply of WTI crude and holding down prices.
Investors are also sceptical that the oil production cuts agreed by Saudi Arabia, Russia and other major producers last week will be enough to meet the dramatic fall in demand.
The group of producers agreed to cut production by 9.7m barrels per day. But an estimate from Japanese bank MUFG said oil demand will fall by 19.1m barrels per day in April and by 12.3m on average in the second quarter.
“We think the cuts will do little to offset the near-term destruction in demand,” said UBS analysts in a note.
“Lower prices are needed to trigger further production shut-ins in North and South America and prevent inventories reaching capacity limits.”