As the Coronavirus continues to devastate the world economy, oil finds itself the next victim as it reaches its lowest prices in 17 years. According to NNA, US benchmark West Texas Intermediate fell 5.3% now, trading at $20 per barrel, and the international benchmark Brent crude fell 6.3% at $23.
This came after the death toll of the virus reached 36,912 deaths worldwide, according to worldometers as of the time of writing. Lockdowns and travel restrictions implemented worldwide to fight the virus have taken their toll on the demand for oil, which resulted in a decrease in prices.
This is also compounded by the increasing supply of oil as Russia and Saudi Arabia reportedly engage a price war after a row over if they should cut output to support prices.
As of the end of last week, Riyadh had not been in contact with Moscow about potential output cuts. Also, Russia’s deputy energy minister remarked that $25 per barrel was not a catastrophe for the country’s producers.
Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia, told Bloomberg News, “Demand concerns are critical but well known. What really took the market down were the signals we got from Saudi Arabia and Russia that they intend to continue their current path.”
Prices are expected to fall even further as storage tanks around the world are set to reach full capacity.
“When the storage capacity is filled, we should probably expect a response from Saudi Arabia, Russia, and other essential oil producers,” AxiCorp’s Stephen Innes said.
Innes further warned that the “longer their response takes, the higher the risk of another steep decline in oil prices.”
There is, of course, the burning question of what this means for Lebanon, which began exploring its oil reserves last month. As the prices and demand for oil begin to dip worldwide, how will Lebanon benefit from their newly discovered oil reserves after so late in the game?
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