Oil prices fell sharply on Monday, with U.S. crude briefly dropping below US$20 and Brent hitting its lowest level in 18 years, on heightened fears that the global coronavirus shutdown could last months and demand for fuel could decline further.
Brent crude, the international benchmark for oil prices, was down US$2.08, or 8.3%, at US$22.85 by 1127 GMT, after earlier dropping to US$22.58, the lowest since November 2002.
U.S. West Texas Intermediate (WTI) crude fell US$1.11 or 5.2% to US$20.40. Earlier in the session, WTI fell as low as US$19.92.
The price of oil is now so low that it is becoming unprofitable for many oil firms to remain active, analysts said, and higher cost producers will have no choice but to shut production, especially since storage capacities are almost full.
"Global oil demand is evaporating on the back of Covid-19-related travel restrictions and social distancing measures," said UBS oil analyst Giovanni Staunovo.
"In the near term, oil prices may need to trade lower into the cash cost curve to trigger production shut-ins to start to prevent tank tops to be reached," he added.
Rystad Energy's head of oil markets, Bjornar Tonhaugen, said: "The oil market supply chains are broken due to the unbelievably large losses in oil demand, forcing all available alternatives of supply chain adjustments to take place during April and May," including cutting refinery runs and increasing onshore or offshore storage.
Supertanker freight rates are rising for a second time this month as traders rush to secure ships for storage.
Goldman Sachs analysts said demand from commuters and airlines, which account for about 16 million barrels per day of global consumption, may never return to previous levels.
The contango spread between May and November Brent crude futures reached its widest ever at US$13.45 a barrel, while the six-month spread for U.S. crude broadened to minus US$12.85 a barrel, the widest discount since February 2009.
Prompt prices are lower than those in future months in a contango market, encouraging traders to store oil for future sales.
"This game of attrition is likely to drag prices even lower and even a price of US$10 per barrel is no longer unimaginable," said Hussein Sayed, analyst at FXTM.
Central banks and governments continued with attempts to support their economies but analysts questioned the effectiveness of their measures. JP Morgan predicts global GDP will contract at a 10.5% annualised rate in the first half of the year.
On Monday, central banks in China and Singapore aggressively eased monetary policy, while Malaysia's government unveiled a US$58 billion stimulus package over the weekend.
Collapsing oil prices have left some African producers facing lost revenue when they most need it to tackle coronavirus.
Sovereign wealth funds from oil-producing countries mainly in the Middle East and Africa are also on course to dump up to US$225 billion in equities.
