Crude Futures Plunge

WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange dropped sharply Monday, sending front-month West Texas Intermediate contract back into the $20 barrel (bbl) range for most of the session as a growing number of countries, counties and cities around the world go into lockdowns amid the spread of the coronavirus pandemic at a time top oil producers are set to flood the market with oil at discounted rates.

On the session, NYMEX April West Texas Intermediate futures dropped $3.03 to $28.70 bbl -- the lowest settlement on the spot continuous chart since February 2016 -- and ICE May Brent declined $3.80 to $30.05 bbl. Both contracts extended losses to near 55% since the start of the year.

NYMEX April ULSD futures ended 9.08 cents lower at $1.0466 gallon and the front-month RBOB April contract plunged 20.93 cents to settle at an 18-year spot low $0.6899 gallon. RBOB futures have come under extreme selling pressure as the spread of coronavirus halts mobility, with gasoline demand set to plunge.

WTI and Brent futures slid more than 10% Monday, pressured by the growing number of new coronavirus cases across the United States and Europe that have caused severe disruptions to public mobility and businesses. New York State Governor Andrew Cuomo announced Monday an indefinite closure of all bars, restaurants, gyms and movie theaters in one of the nation's most populous states, while New Jersey launched a statewide curfew for all nonessential travel from 8 p.m. to 5 a.m. Similar measures were introduced today in Maryland, Connecticut and California, with odds rapidly increasing for a nationwide lockdown to be declared at some point this week.

Weighed down by these fears and rapidly increasing expectations for recession, the U.S. stock market took another massive hit Monday, sending the Dow Jones Industrials down 2,699 points in afternoon trade and the S&P 500 Index 10.7% lower.

The stock selloff came even as the Federal Reserve slashed its benchmark interest rate to a near zero over the weekend, while also launching a new $700 billion bond-buying program to negate the impact of the coronavirus slowdown. Following the Fed's announcement, other central banks around the world have also stepped up their efforts to ease the pressure on their respective economies. Despite policy changes, investors seemed to have been unnerved that major central banks are running out of ammunition to negate supply disruptions in the global economy.

Goldman Sachs now expects economic growth in the United States to drop 5% this year, a stunning reversal from a forecast for a 2.3% growth rate.

Over the weekend, China offered a glimpse into how deep the economic disruption could be at the peak of infectious outbreak. From January to February, China's manufacturing activity dropped by a shocking 13.5% and retail sales were down 20.5% as coronavirus disrupted factory activity and social gatherings in its industrial heartland and beyond.

The oil complex has also been under intense pressure on the supply side, as top oil producers Saudi Arabia and Russia ramp up output and slashed prices in their battle for global market share. Reuters reported Saudi Arabia has boosted its crude supplies to traditional buyers of Russia's main blend Ural at a steep discount of $25 bbl on CFI Rotterdam basis. Refitiv Eikon data showed Monday Russia's Ural Blend offered slightly higher than $30 bbl, suggesting it is being outpriced by the steep Saudi discounts.

Saudi Aramco's CFO Khalid al-Dabbagh said Monday the company was "very comfortable" with $30 barrel oil prices and can sustain higher oil output planned for April well into June.

Alarmed by the market's turn, OPEC's Secretary General Mohammed Barkindo and International Energy Agency Chief Dr. Fatih Birol issued a joined statement on Monday, noting the large drop in oil prices this month will negatively affect developing countries across the world, with their income from oil and gas sector to fall by 50% to 85% in 2020 according to an IEA analysis. "This is likely to have major social and economic consequences, notably for public sector spending in vital areas such as healthcare and education," read the joined statement.

Liubov Georges can be reached at liubov.georges@dtn.com

(CZ)

Copyright 2020 DTN/The Progressive Farmer. All rights reserved.