Oil clawed back some losses after collapsing below $30 a barrel because the pack up of swathes of the world’s economy triggers a meltdown in global fuel demand and therefore the most volatile market on record.
Futures in ny recovered about half the previous day’s 9.6% slump as a gauge of volatility jumped to the very best in data going back to 2007. Governments are restricting the movement of individuals by closing their borders and banning travel, hammering fuel consumption and resulting in the most important daily drop by U.S. gasoline prices since 2005.
As airlines cut the amount of flights daily and a growing number of nations enter lock-down, oil markets face an unprecedented glut. The slump in demand is coinciding with a supply flood as Saudi Arabia and Russia look to spice up production as they engage during a price competition for market share. ny futures lost 23% last week, the foremost since December 2008.
“The quarantine measures mean that global fuel demand goes to be hit hard, which comes on top of a supply shock,” said Vivek Dhar, a Melbourne-based analyst at Commonwealth Bank of Australia. “That timing has just been the worst case scenario for oil.”
The turmoil in oil is being played out across financial markets, with Wall Street stocks suffering their biggest plunge since 1987 on Monday after President Donald Trump warned of a possible recession, with economic disruption from the coronavirus potentially extending into summer. U.S. and European equity futures advanced on Tuesday while stock markets in Asia were mixed.
Leaders of the Group of Seven said they’re going to do “whatever is necessary” to make sure a globally coordinated response to the coronavirus pandemic and its economic fallout. Trump markedly changed his tone on the outbreak and said Americans should avoid gathering in groups of quite 10 people, while Canada closed its borders to most foreigners. France said it’s going to further tighten a national lock-down, while Germany partially closed its borders with five neighboring countries.
West Texas Intermediate for April delivery added $1.38, or 4.8%, to $30.08 a barrel on the ny Mercantile Exchange as of 7:42 a.m. in London after falling to $28.70 on Monday. Brent for May settlement rose 92 cents to $30.97 on the ICE Futures Europe exchange. The contract slid 11.2% on Monday.
The spectacular plunge in prices hasn’t deterred Saudi Arabia from pumping historic levels of oil. State-run Saudi Aramco plans to supply at its maximum capacity of 12 million barrels each day in April, Chief military officer Amin Nasser told investors, adding, “I doubt if May are going to be any different.”
The country is showing no sign of backing down in its price competition with Russia, with Aramco saying it’s “very comfortable” with oil prices at $30 a barrel.
The collapse in demand has brought gasoline prices within the U.S. on the brink of parity with WTI, briefly dipping below the U.S. benchmark for the primary time since 2009. As recently as March 10, Nymex gasoline futures traded at a premium of just about $18 a barrel to WTI.
Gasoline tumbled by 23% on Monday, the most important drop since 2005. it had been up 9.7% at 75.70 cents a gallon on Tuesday.
“There is not any constructive bullish case to be made for oil immediately ,” said Jeffrey Halley, a senior analyst at Oanda. “I think Brent will settle between $25-$30 a barrel range from here.”