Oil in Freefall

WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange plunged Wednesday, with crude and gasoline falling to their lowest levels in 18 years, succumbing to pressure from sharp slowdowns in economic activity across the United States, Asia and the European Union as plans to inject trillions of dollars into the global financial system failed to prevent a panic selloff driven by fears of a worsening pandemic.

As investors sold equities, they bought the dollar, exerting additional pressure on West Texas Intermediate futures, with the April contract set to expire Friday afternoon. The greenback rallied to a three-year high 102.040 before settling at 101.543 in afternoon index trade as investors seemed to flee even the safest assets, including gold and long-term government bonds.

U.S. stocks got crushed Wednesday with Dow Jones Industrials falling below 20,000 points for the first time in three years and the S&P 500 dropped another 7%. New York Stock Exchange was forced to temporally suspend trading for the fourth time in the last two weeks.

Governments around the world are stepping up plans to negate the economic blow from the spreading COVID-19 pandemic, as they institute mandatory business shutdowns and restrict social mobility. Wednesday's reports indicate U.S. President Donald Trump will seek a $1 trillion aid package from Congress, which is expected to include business support and potentially checks of $1,000 for most American citizens.

There are now over 6,500 confirmed cases of coronavirus infection in the United States, with the death toll at 125. On Wednesday, the Trump administration invoked a wartime Defense Production Act to increase supplies of critically-needed medical equipment available to the hospitals.

As COVID-19 wreaks havoc on the economy, analysts warn global oil consumption is heading for the biggest year-on-year drop ever on record in 2020, with losses seen accelerating in the next five to eight weeks. Estimates range from 8 million barrels per day (bpd) to 10 million bpd of demand loss for the second quarter before consumption gradually returns to normal. However, pandemics of such magnitude can take uncertain turns and linger longer than initially thought, making any forecast at this juncture extremely volatile.

NYMEX April WTI futures dropped 24.4% on the session to settle at $20.37 barrel (bbl), with the May contract ending at a $0.46 premium. ICE May Brent closed down $3.85 or 13.4% at $24.88 bbl.

NYMEX April ULSD futures shed 8.15 cents to $0.9542, edging off a $0.9343 38-month low on the spot continuous chart. Front-month NYMEX RBOB contract dropped 7.37 cents to $0.6377 gallon at settlement, having slumped to a $0.6343 18-year low.

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

(CZ)

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