United States crude oil prices fell sharply, plummeting to their lowest levels since 1986, as a collapse in demand because of the coronavirus and the resulting economic shutdowns comes atop shortages in storage capacity.
West Texas Intermediate, the U.S. benchmark, dropped to nearly 10 dollars a barrel, a 45-per-cent decline, before ticking up a couple of percentage points.
However, longer term contracts were faring somewhat better, while still down on the day, signalling optimism that economic production will improve by the end of 2020.
June contracts were at just over 22 dollars per barrel and deliveries for later in the year are prices even higher.
Brent crude was lower by 5.7 per cent, and was trading at 26 dollars a barrel.
Oil prices have been hit by both the coronavirus bringing major economic sectors to a near standstill, and a price war between Russia and Saudi Arabia that kicked off at about the same time the pandemic was spreading.
Earlier this month, OPEC+ countries – an expanded format of the Organisation of Petroleum Exporting Countries (OPEC) – agreed on a deal to cut production by 9.7 million barrels per day for May and June, but failed to support prices back to previous levels.
Despite the agreement on cuts, which may not be coming quickly enough, storage capacity is being tested, helping to bring prices on short-term contracts lower.
The energy sector was leading U.S. stocks lower on Monday, with the S&P 500 down about 0.3 per cent at noon, with the index off its session lows.
There are growing concerns about how the low prices will hurt the U.S. energy sector and have significant consequences for jobs, at a time when unemployment has surged, with more than 22 million people being laid off since the middle of March.
As the falling oil prices hit energy stocks in Australia, the benchmark S&P/ASX200 index fell 134.5 points, or 2.45 per cent, to end at 5,353 and the broader All Ordinaries index was down 130 points, or 2.34 per cent, at 5,414.7.
Japan’s benchmark Nikkei 225 Stock Average lost 228.14 points, or 1.15 per cent, to close at 19,669.12 as investors locked in profits after recent gains.
