Oil pumps at an oil field. Picture: 123RF / PIXNOO
Oil pumps at an oil field. Picture: 123RF / PIXNOO

Melbourne/Tokyo — Crude oil benchmarks fell sharply on Monday, with Brent hitting its lowest since November 2002, as the global coronavirus pandemic worsened and the Saudi Arabia-Russia price war showed no signs of abating.

Brent futures were down 6.7%, or $1.68, to $23.25 a barrel as of 4.49am, after earlier dropping to $23.03, the lowest since November 2002.

US West Texas Intermediate (WTI) crude futures fell as far as $19.92, near an 18-year low hit earlier in March, and was last trading down 5.4%, or $1.17, at $20.34 a barrel.

The oil markets have been slammed by demand destruction caused by the coronavirus pandemic and the Saudi Arabia-Russia price war that is flooding markets with extra supply.

Saudi Arabia said on Friday it was not in talks with Russia to balance oil markets despite rising pressure from Washington to stop a price rout amid the coronavirus pandemic. A senior Russian official had said before that on Friday that a larger number of oil producers could co-operate with Opec and Russia to support prices.

“Opec, Saudi Arabia and Russia could mend their differences, but there’s not that much Opec could do…. The demand shock from Covid-19 is just too big,” said Lachlan Shaw, National Australia Bank’s head of commodities research.

“The reality is global storages will fill up in a couple of months if nothing changes, and that will have all sorts of disruptive impacts on pricing.”

With the demand now forecast to plunge 15-million or 20-million barrels per day, a 20% drop from 2019, analysts say huge production cuts will be needed beyond just Opec.

The contango spread between May and November Brent crude futures reached its widest yet at $13.45 a barrel, while the six-month spread for US crude broadened to minus $12.85 a barrel, the widest discount since February 2009.

Prompt prices are lower than those in future months in a contango market amid a supply glut, encouraging traders to store oil for future sales.

The coronavirus pandemic, which has killed about 32,000 people and sickened more than 660,000 worldwide, has brought the worldwide aviation industry to a standstill and put about 3-billion people on lockdown to limit the spread of the virus.

“From a physical point of view, it’s really bleak,” Shaw said. “You need a strong signal to tell suppliers this is a pretty diabolical situation.”