While Saudi Arabia and Russia continue to fight for market share, crude oil prices fell below $ 30 a barrel on Tuesday as the coronavirus pandemic slowed economic growth and oil demand.
Countries take unprecedented steps in the fight against the virus. Many governments advise their citizens not to leave their homes, vehicle use has dropped to very low levels, many business interrupts their activities, or they continue to employ their staff under homeoffice conditions. These measures and practices have inevitably reduced the fuel demand.
Brent crude LCOc1 futures dropped as $ 1.32 per barrel and became $ 28.73. This indicator has dropped below $ 30 per barrel for the first time since 2016. Even though the stock markets recovered after the losses on Monday in anticipation of financial incentives, declines were experienced.
The oil supply and price war, started by two top oil producers such as Saudi Arabia and Russia, continue.
Due to the cheap Saudi’s oil in the world, exports experience difficulties, and the futures market is affected by this drop in physical markets. WTI crude at East Houston, a key price of oil delivered to Houston for exports, fell below the futures price for the first time on record.
The Saudi energy ministry said on Tuesday they will increase the production over 10 million barrels a day in the coming months.
Brent’s WTI WTCLc1-LCOc1 premium has narrowed to 67 cents per barrel and has reached levels not seen since November 2016. Brent, an international benchmark, reacts more to the demand of non-US manufacturers, so the expected increase in production from Saudi Arabia and Russia has outperformed WTI. When that premium – also known as the arbitrage – narrows, exports made from U.S. become less attractive because of the cost of shipping them.
The United States has announced that it will take the advantage of the low oil prices to fill the Strategic Oil Reserve (SPR). Other countries and companies are also planning similar measures to fill their tanks and to stockpile large volumes of oil. Oil storage rates in the main trade centers of the world increase with the release of millions of barrels of oil, which are not consumed every day.