A key benchmark of US oil prices plunged to a 21-year low on Monday, amid continued fears about oversupply in the market.
US West Texas Intermediate crude futures (CL=F) dropped over 37.2% to $11.46 per barrel on Monday, a level not seen since 1998. The slump represents the biggest one day drop in percentage terms since 1982.
Brent oil futures (BZ=F), the international benchmark, were more resilient. Brent was down just 5.8% to $26.44 per barrel at the same.
“The steep fall in the price is because of the lack of sufficient demand and lack of storage place, given the fact that the production cut has failed to address the supply glut,” said Naeem Aslam, chief market analyst at Avatrade.
Oil prices have been under pressure since late February, amid fears about oversupply in the market and slumping demand due to the coronavirus pandemic. US oil prices have been particularly hard hit, with high fixed-costs in the US shale industry.
US oil prices plunged 30% in a day in early March after Saudi Arabia started a price war with Russia by increasing oil production and slashing prices. The feud was resolved two weekends ago when the OPEC+ oil cartel, which Saudi Arabia and Russia are both part of, agreed to cut global oil output by 9.7m barrels per day. It represented the largest single cut to oil output ever.
However, the decision has done little to arrest the slide in oil prices. The price war coincided with slumping demand for oil globally, as nations closed their economies due to the COVID-19 pandemic.
“The OPEC+ et. al. deal did not address the lack of demand globally,” said Sebastien Galy, a senior macro strategist at Nordea bank.
Air travel has all but ground to a halt around the world and countries around the world have told citizens to stay at home as much as possible, reducing demand for vehicle fuel. The International Energy Agency (IEA) last week said it expects global demand for oil this month to fall to a level not seen since 1995.
Galy said OPEC+ were likely to announce further cuts to production in the coming weeks.
“Saudi Arabia and Russia have the capacity to wait this out for potentially months, the rest do not,” he said.
“Time is therefore ticking and over the next few weeks OPEC+ should come to the table led by Saudi Arabia for far more substantial cuts.”