Oil Slammed by Price War and Virus in Worst Loss Since 1991

by Dan Murtaugh, Alex Longley, and Jacqueline Davalos (Bloomberg) Saudi Arabia and Russia both plan to increase production; IEA sees unprecedented combination of supply-and-demand shock -- Oil plunged as both Russia and Saudi Arabia stood poised to flood the market with cheap crude in an all-out price war just as the coronavirus is spurring the first contraction in demand since 2009.

The former allies pledged swift retribution for the collapse of the OPEC+ alliance meeting last week. The Gulf kingdom has slashed its official crude prices and is threatening record output. Russia's largest producer, meanwhile, said it will ramp up production next month. Oil futures fell more 30% in New York and London on Monday, the biggest drop since the Gulf War in 1991, before pulling back to around a 20% decline.

The freefall ricocheted across financial markets. U.S. stocks plunged almost 6% with the S&P 500 index down 18% from its Feb. 19 all-time high. All of the annual growth the International Energy Agency had anticipated last month -- just over 800,000 barrels a day -- has been wiped out and demand is now expected to contract by 90,000 barrels a day.

"The situation we are witnessing today seems to have no equal in oil market history," said IEA Executive Director Fatih Birol. "A combination of a massive supply overhang and a significant demand shock at the same time."

The cataclysmic price collapse will resonate through the energy industry, from giants like Exxon Mobil Corp. to smaller shale drillers in West Texas. It will hit the budgets of oil-dependent nations from Iraq to Nigeria and could also reshape global politics, eroding the influence of countries like Saudi Arabia. The fight against climate change may suffer a setback as fossil fuels become more competitive against renewable energy. READ MORE

Excerpt from Brownfield Ag News: Angie Setzer with Citizen’s Grain in central Michigan says bids at a local ethanol plant are indicative of what’s transpiring across the Midwest.

“Obviously with the significant drop in crude, I mean we’ve basically seen two to three black swans hitting the ethanol industry. So talking to the ethanol producer, they backed their bid off from a week ago another 20 cents.”

She tells Brownfield farmers anxious to move corn out of storage are frustrated.

“This logistical situation that I’ve seen at least here locally is nothing like I have seen before. Offered 10,000 bushels to an ethanol plant for April shipment the other day, he never even asked me the price. He just told me he wasn’t interested.”

Setzer says some ethanol plants are slowing their grind, but others can’t afford to because there’s no margin protection. READ MORE