SINGAPORE- Oil extended losses on Monday as an emergency rate cut by the US Federal Reserve failed to soothe global financial markets panicked by the rapid spread of the coronavirus while a price war rages on between top producers.
Brent crude fell $1.13 to $32.72 a barrel, tumbling after last week’s plunge of 25 percent, the largest weekly fall since 2008. The front-month price opened at a high of $35.84 but slipped to a low of $31.63.
US crude was at $31.01, down 72 cents after slipping below $30 earlier in the session, despite US President Donald Trump’s pledge to fill strategic oil reserves in the world’s largest oil consumer “to the top”.
The US Fed slashed interest rates on Sunday in its second emergency cut this month, and said it would expand its balance sheet by at least $700 billion in coming weeks in a bid to ease tension in financial markets.
Oil prices have come under intense pressure on both demand and supply sides: Worries about the pandemic slashing oil buying persist, while oversupply fears have grown after top exporter Saudi Arabia ramped up output and slashed prices to increase sales to consumers in Asia and Europe.
Earlier this month, the Organization of the Petroleum Countries and Russia failed to extend a production cut agreement which has been supporting prices since 2016.
“Fear remains the crux of the problem here as market players remain unconvinced that monetary policy easing and liquidity injections will solve an essentially healthcare crisis,” OCBC Bank’s economist Selena Ling said.
“The end-game to me remains not about more policy bazookas, but a peak in global COVID-19 infections and fatalities, and, or a COVID-19 vaccine cure in the horizon.”
Despite the massive drop in both oil and natural gas prices last week, the US oil drilling rig count rose for a second week in a row to its highest since December, energy services firm Baker Hughes Co said in its closely followed report on Friday.
Still, the number of rigs is expected to fall as producers deepen spending cuts on new drilling.
More pain will be felt by US producers as Brent’s premium to is close to its narrowest since 2016, making US crude oil uncompetitive in international markets. Exports are set to fall by 1 million barrels per day each in April and May, sources have said.
“The big loser will be US shale, where the Republican government will possibly face a bailout decision on a heavily indebted industry sooner rather than later,” said Jeffrey Halley, a senior market analyst at OANDA in Singapore.
Meanwhile, major energy companies in the United States imposed work-from-home rules for office staff and began health checks for remote or critical workers as coronavirus spread and threatened an industry reeling from falling demand and profits.
BP, Exxon Mobil, Kinder Morgan, Motiva Enterprises and Royal Dutch Shell told most office staff to work from home starting Monday. Federal regulators on Friday were pressed by companies to ease work rules for pipeline operators and to limit visits to some sites. Shell and Chevron began health checks of workers and visitors at some key US facilities, spokesmen said.
Offshore rigs, refineries and pipelines require on-site teams and group workers in close quarters, making them vulnerable in a Covid-19 outbreak. They cannot be run remotely and health checks could prevent forced shutdowns that could lead to big losses or local fuel shortages.
The pandemic has infected more than 156,000 people worldwide including some 2,900 people in the United States, killed more than 5,800 globally and slashed fuel demand amid shuttered schools, churches, offices and some retail stores. — Reuters
