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Supply-demand mismatch pushes oil prices to 21-year low at 14$

U.S. benchmark, West Texas Intermediate (WTI), plunged below the $15 per barrel mark as the lockdown led by the COVID-19 pandemic.

Supply-demand mismatch pushes oil prices to 21-year low at 14$

US crude crashed to below $14 a barrel on April 20, 2020, its lowest level for over two decades, as concerns about a virus-triggered demand shock and lack of storage eclipsed an output cut deal. (Photo by DAVID MCNEW / AFP)

The troubled combination of low demand and lack of global storage for crude oil has pushed the oil prices to the lowest level in 21 years.

U.S. benchmark, West Texas Intermediate (WTI), plunged to $14 per barrel mark as the lockdown led by the COVID-19 pandemic across the globe continues. To add to the injuries, global storage is reaching its limits.

Currently, WTI crude is trading at $14.04 per barrel, lower by 23.10 per cent from its previous close.

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Brent crude was at $27.66, lower by 1.5 per cent from the previous close.

Not even the recent output cut agreement between the Organization of Petroleum Exporting Countries (OPEC) and its allies has been able to provide any relief for the ailing industry. There were hopes that agreement would stabilise oil prices, but with COVID-19 pandemic continuing, there has been a large slip-in demand that is not letting a pick up in oil prices.

The current market is oversupplied on shrinking demand creating a situation of free fall for crude.

Soon after the OPEC-Russia talks on production cut failed earlier last month, crude had fallen by more than 25 per cent, the largest fall since the 1991 Gulf War, to $34 per barrel on March 9.

The price of oil has now reached a point that it is increasingly becoming difficult for higher-cost producers to remain in operation and rather look at declaring bankruptcy. A lot of US shale producers are in deep trouble and analysts expect that low oil price for few more months will result in a spate of bankruptcies in the US.

With world demand now forecast to plunge by over 20 million barrels per day, a 30 per cent drop from last year, analysts say massive production cuts will be needed beyond just what has been agreed between the Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers.

Global markets have been on a bear run including the financial markets for the past few weeks owing to the concerns of a significant impairing of the world economy due to the coronavirus crisis.

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