Brent crude fell by 7% on Thursday, as World Health Organization identified the coronavirus as an outbreak and accordingly Trump’s ban of travel from Europe to the United States, as part of measures to stop virus’ spread.
The flood of cheap oil supplies coming from Saudi Arabia and the United Arab Emirates has increased the pressure on prices. Gulf Arab producers are ramping up the oil war with Russia by increasing production. Undoubtedly, both sides have different goals, it is not just a matter of oil price. They have financial capacities to sustain the oil price war over many quarters, not months. Saudi Arabia has increased efforts to remove Russia’s Urals oil grade by introducing its cheap product to refineries purchasing Russian crude oil worldwide.
Brent crude LCOc1 traded at $ 33.22, down $ 2.57 or 7.2% per barrel, while West Texas Intermediate (WTI) crude traded at $ 31.50 with a CLc1 value of $ 1.48 or 4.5% down.
Thereafter Trump’s announcement of travel restrictions, Dow Jones index has performed worst since Wall Street’s 1987 “Black Monday” collapse, and global stocks fell.
Contango is where a commodity futures price is currently higher than the purchase price. This encourages oil companies and traders to stock oil on land or at sea, in tankers, in order to sell later on at a higher rate to take the advantage. The six-month Brent contango spread LCOc1-LCOc7 from May to November widened to as much as $7.31 a barrel, a level not seen since January 2015.
Cutting the long story short, as demand drops and production rises rapidly the market faces a huge increase in supply in April.