Global oil futures plunged to four-year lows on Monday in the biggest one-day drop since 1991 as OPEC and Russia appear shaped up for an all-out price war.
Coming on top of the potential demand shock created by the global spread of COVID-19, oil futures slumped and look like remaining under pressure on Tuesday and for weeks to come.
Hopefully, we will not see another day like Monday when prices went into free fall at times.
From now on oil prices will be eroded slowly as the shape of the price war between Saudi Arabia and Russia emerges.
West Texas Intermediate crude for April delivery fell $US10.15, or 24.6%, to end at $US31.13, in New York after briefly trading below $29 in early trade.
May Brent crude futures, the global benchmark, dropped $US10.91, or 24.1%, to settle at $US34.36 a barrel in Europe. The percentage declines for both grades were the largest since January 1991, during the Gulf War.
A push by the OPEC for a deal with its Russia-led allies to deepen existing cuts by 1.5 million barrels a day was rejected by Moscow in that failed on Friday without an agreement.
That means existing curbs will expire at the end of March, leaving OPEC members and their allies free to pump freely and attack each other’s markets. China’s COVID-infection has further complicated the issue being the biggest oil importer in the world.
Investors are now worried about the stability of oil producers large and small – especially US shale oil producers who are the most exposed financially.
ASX-listed oil stocks slumped. Oil Search shares lost 35% in one day to $3.30, Santos dropped 27% to $4.89.
Woodside Petroleum fell 18.3% to $21.54, Origin was down 15.6% to $5.72, and Beach Energy slipped 19% to $1.33.
Analysts warned that the price of Australia’s LNG exports is linked to the oil price, the 30% plus fall, if sustained for any great period of time, could pressure the balance sheets of producers including Oil Search, Santos, Woodside and Origin, and the viability of the nation’s multibillion-dollar pipeline of future LNG project investments.
Certainly smaller players like Beach (down more than 19%) will also be hurt, but possibly not as much as the majors like Woodside and Santos and their double exposures to LNG and crude oil.
BHP is another company whose oil and gas exposure has hurt the company – its shares slumped 14.4% on Monday, against the much smaller (but still painful) 6.3% dip for rival Rio Tinto’s shares.
Caltex lost 15% and analysts wonder if the oil price slump and COVID-19 crisis will end the proposed $8 billion takeover of Caltex by Canada’s Couche-Tard.
