US oil prices drop to 21-year low over declining demand

NEW YORK: The price of oil collapsed to more than two-decade low on Monday, falling to a level not seen since 1999, as demand dries up and storage runs out.

The price of a barrel of West Texas Intermediate (WTI), the benchmark for US oil, dropped 14 percent to $15.65 in Asia trading on Monday. The oil market has come under intense pressure during the coronavirus pandemic with a huge slump in demand.

US storage facilities are now struggling to cope with the glut of oil, weakening prices further. The oil industry has been struggling with both tumbling demand and in-fighting among producers about reducing output.

US crude benchmark West Texas Intermediate briefly plunged almost 20 percent to below $15 as stockpiles continue to build owing to a crash in demand caused by the COVID-19 pandemic. Brent oil, the benchmark used by Europe and the rest of the world, was slightly weaker, down 0.8 percent to $27.87 a barrel.

Earlier this month, OPEC members and allies finally agreed to a record deal to slash global output by about 10 million barrels. The deal was the largest cut in oil production ever to have been agreed upon.

Analysts said this month’s agreement was having little impact on the oil crisis because of lockdowns and travel restrictions that are keeping billions of people at home. WTI was hit particularly hard as its main US storage facilities in Cushing, Oklahoma, were filling up.

Financial group ANZ Bank said crude oil prices remained under pressure, as projections of weaker demand weigh on sentiment. “Despite the OPEC+ alliance agreeing to an unprecedented cut in output, the physical market is awash with oil,” it said, referring to the Organization of the Petroleum Exporting Countries and non-OPEC partners.

AxiCorp Chief global market strategist Stephen Innes added: “It hasn’t taken long for the market to recognise that the OPEC+ deal will not, in its present form, be enough to balance oil markets.”

The drop was also driven by a technicality of the global oil market. Oil is traded on its future price and May futures contracts are due to expire tomorrow and traders will be keen to offload holdings to avoid incurring delivery and storage costs.

Investors are keeping an eye towards a $450 billion economic relief plan to be announced by US Congress for small businesses to add to the trillions already pledged to support the economy.