Oil Continues The Free Fall

Oil Continues The Free Fall

Benchmark crude oil fell $3.03 to close at $28.70 yesterday. On Wall Street, the futures of the S&P500 and the Nasdaq fell more than 4%, which anticipated a round of collapse for American shares. 

Futures for Brent, the benchmark crude in Europe, are down more than 11%. The prices have dropped $3.80 to settle at $30.05 a barrel. It is the lowest number since January 2016. That year OPEC had a strategy to expel US fracking companies from the market. It increased crude production by sinking prices to drive American firms out of the market. The price of a barrel of Brent reached $27.88 on January 20, 2016. coronavirus

Now, amid a new battle to flood the cheap oil market, again led by Saudi Arabia, Brent is approaching those low levels. Saudi, as a de facto leader of OPEC, is opposing Russia and the US. The situation is being exacerbated by the strong impact of the coronavirus on the global economy, which is weighing demand for oil. Crude faces a blow from the demand and supply sides at the same time, a situation that has never occurred with such intensity. 

Commerzbank explains that the more states stop public life, close their borders and ban flights, the greater the effect on oil demand. It also implies that economic activity generally reduces.

German analysts explain that there’s a risk of a significant expansion in supply at the same time. If the production increases announced last week by some OPEC countries and Russia, really take effect. As such, the oil market is heading for an unprecedented oversupply.

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Countries Are Taking Measures Against Coronavirus

The fast spread of the deadly virus killed over 7,174 people worldwide and resulted in lockdown-like situations in several countries. The outbreak is affecting162 countries around the world.

The number of confirmed cases in the world has reached 182,764. The number of Coronavirus cases in China has risen to 80,881.  About 68, 690 people recovered from the virus. The World Health Organization estimated the coronavirus mortality rate and as of March 3, it was 3.4%. Dr. Tedros Adhanom, general director of the WHO, stated that by comparison, seasonal flu kills far less than 1% of those infected generally.

In several countries tour and travel, companies have been restricted to arrange trips in groups. On Monday, Germany restricted movement across its borders with France, Austria, and Switzerland. African countries and India are the least equipped, and they are trying to delay the virus’s spread from China, the Mediterranean, Iran, and North Atlantic countries.

Social distancing measures can help to reduce Coronavirus transmission and enable health systems to cope. However, Tedros Adhanom, chief at WHO, says that such measures aren’t enough and suggested that countries took a comprehensive approach. 

The International Monetary Fund called for increased coordinated action to boost confidence and provide stability to the global economy. 

Speculators Do Not Trust Oil

Brent oil collapsed to its lowest level since 2015 last week. This collapse will also be seen in US crude, which will have to fight much cheaper imports of Brent crude, analysts say. 

Although Brent and West Texas are different types of oil, their composition is very similar and they are practically substitutable with each other.