JOHANNESBURG - Brent crude tumbled to an 18-year low overnight yesterday before slightly recovering as the collapse in demand and Opec supply-price war created a perfect storm.
The oil price hit record lows, dipping below $20 (R353) per barrel early yesterday before claiming back some lost ground.
Traders continued to bet that the combination of widespread lockdowns across the globe and the breakdown of the Saudi Arabia-Russia stand-off would continue to weigh on prices.
The Saudi Arabia-Russia price war is showing no signs of abating.
Brent crude fell 8.94percent to $22.83 per barrel during afternoon trade before closing at $22.60 per barrel at 5pm.
The US oil benchmark, West Texas Intermediate (WTI), lost more than 6percent and fell to $19.92 per barrel overnight before slightly recovering above $20.
On Friday, Brent spot prices declined 6.4percent to settle at $24.54 per barrel as oil demand concerns outweighed stimulus efforts by policymakers around the world.
ActivTrades chief analyst Carlo Alberto de Casa said a clear fall below $20 would open space for further declines amid this massively bearish trend. “The weakness of stock markets is adding further bearish pressure on the oil price, with the WTI benchmark again approaching the psychological threshold of $20,” De Casa said.
“Markets are now betting that the crisis could be relatively long, and the barrel is the perfect asset to be shorted by traders.”
The global coronavirus pandemic continued to worsen yesterday with more than 740000 confirmed cases and more than 35000 deaths worldwide.
Oil prices have fallen sharply since the beginning of this month following a dispute between Saudi-Arabia and Russia over cutting oil supplies by 1.5million barrels a day as demand fell in China, the world's biggest importer of oil, due to the coronavirus pandemic.
The fall in demand has created a huge oil surplus that risks overwhelming storage capacity.
This will see the price of 95 octane petrol in South Africa decreasing by between R1.76 per litre and R1.88 per litre from tomorrow.
FXTM’s Hussein Sayed said it was widely believed that the oil surplus will reach 25million barrels a day by April, a level that could even make it difficult to find storage for this excess supply.
Sayed said although it was becoming unprofitable to higher cost producers, many of them are still hoping others shut off production first.
“This game of attrition is likely to drag prices even lower and even a price of $10 per barrel is no longer unimaginable. At such a level, higher cost producers will have no choice but to shut production,” Sayed said.
“However, long-term demand is what will determine where prices will be by year-end, and that will depend widely on how deep the recession will be and the shape of the recovery afterwards.”