Oil fell on Monday as an emergency rate cut by the U.S. Federal Reserve failed to soothe global financial markets panicked by the rapid spread of the coronavirus. Meanwhile, a price war between top producers added to a growing supply glut.
Brent crude fell $2.07 to $31.78 a barrel by 0729 GMT, extending last week’s plunge of 25%. It was the largest weekly fall since 2008. The front-month price opened at a high of $35.84 but slipped to a low of $31.63.
U.S. crude was at $30.35, down $1.38 after slipping below $30 earlier in the session, losing ground despite U.S. President Donald Trump’s pledge to fill strategic petroleum reserves (SPR) in the world’s largest oil consumer “to the top”.
“While helpful on the margin, such (SPR) policy pales in comparison to a coronavirus plagued market that is measured in months or a price war.
It is expected to last several quarters or longer,” RBC Capital Markets analyst Michael Tran said.
With current SPR stockpiles at 634 million barrels, or 80 million barrels less than a nameplate SPR capacity of 714 million barrels.
The government buying would clean up only about 20 days of a global overhang that RBC estimates at an imbalance of 4 million bpd, Tran said.
Oil Plunge to the Market
The U.S. Fed slashed interest rates to near zero on Sunday in its second emergency cut this month. It would expand its balance sheet by at least $700 billion in coming weeks in a bid to ease tension in financial markets.
Oil prices have come under intense pressure on both demand and supply sides. There were about the worries about the coronavirus pandemic slashing oil buying persist. In other words, oversupply fears have grown after top exporter Saudi Arabia ramped up output and slashed prices to increase sales to Asia and Europe.
The number of rigs is expected to fall, however, as producers deepen spending cuts on new drilling.