Oil Heading For 17-Year Lows

The oil market can’t get out of the red zone. After a massive sell-off on Tuesday’s trading session Brent fell below $ 30 per barrel, the decline continued on Wednesday. Most likely, the sellers are rallying their forces to test January 2016 minimums, when oil traded as low as $ 27.10. If prices sink even further, the next target may be a 17-year low, around $25 per barrel.

Oil quotes continue to plummet along with global stock markets, reflecting panic caused by the coronavirus outbreak. Spain declared a state of emergency on Saturday. The Eurozone’s fourth largest economy reported that the death toll has increased dramatically - the number of deaths from coronavirus doubled to 533. Earlier, the United States also reported an emergency in the country. Italy, which is the most affected country, has confirmed the total death toll of more than 2503 people. Germany has closed borders with neighboring countries. Amid the spreading pandemic and a sharp decline in economic growth, coupled with growing tensions in the financial sector, experts predict an impending global economic recession.

S&P credit-rating agency currently presumes that global GDP growth in 2020 will be only 1.0-1.5%, while the balance of risks will shift downwards. Preliminary data from China indicate that the Chinese economy will be hit the most. In the first half of 2020, China's economic growth will drop by more than 7%. This is already confirmed by statistics. According to data released on Monday, industrial production volumes in the country decreased by 13.5% last month, capital investment plunged by 24.5%, retail sales - by 20.5%. Bloomberg forecasts the historical drop in global oil demand in 2020 caused by a global pandemic. Goldman Sachs (NYSE:GS) predicts that by the end of the year, oil demand could drop by 4 million barrels per day.

Oil prices went into a tailspin last week after Russia refused to support OPEC production cuts. Right after that, Saudi Arabia announced its plans to raise its crude oil production in April. Similar plans were also voiced by Nigeria, the UAE and Russia. Thus, the growth in oil supply expected in April, together with the collapse of demand caused by the slowdown in the global economy, means that the world oil market will inevitably face a significant excess of supply in the second quarter of 2020. According to preliminary data, the oil surplus may exceed 6 million barrels per day, which once again gives us all reasons to expect an inevitable collapse of "black gold" quotes.