Oil drops as much as 8%, extending declines after worst week since 1991

Oil prices moved lower Sunday night, extending declines from the prior week, which saw U.S. West Texas Intermediate crude fall 29.31% for its worst week since 1991.

On Sunday, WTI fell 6% to trade at $21.27 per barrel, while international benchmark Brent crude shed 6.9% to trade at $25.13 per barrel. Earlier in the session WTI was down 8%. 

Prices have dropped as the coronavirus outbreak has slowed worldwide travel and business activity, just as powerhouse producers Saudi Arabia and Russia prepare to ramp up production.

The rapid decline in crude prices is wreaking havoc on the financial markets, forcing investors to sell other assets such as Treasuries or equities indiscriminately to cover the losses in their energy positions. WTI crude futures have been cut in half this month.

As traders attempt to quantify what increasingly strict travel restrictions and stay-at-home mandates will mean for longer-term crude demand, prices have swung in either direction.

On Wednesday WTI dropped 24.4% to a more than 18-year low, in its third worst day on record. One day later, prices snapped back, surging 23.8% for the largest percentage gain in history. Given WTI’s 60% decline this year, a smaller gain, of course, now accounts for a much larger percentage move. But the volatile swings are notable.

Just as demand drops, the OPEC+ production cuts currently in place expire at the end of the month, meaning nations will soon be allowed to pump as much as they please. 

Saudi Arabia has announced plans to increase its daily production to a record 12.3 million barrels per day in April. By comparison, the kingdom pumped roughly 9.7 million bpd in February. Russia is among the other OPEC+ nations that has said it, too, could ramp up production.

“With each day there seems to be yet another trapdoor lying beneath oil prices, and we expect to see prices continue to roil until a cost equilibrium is reached and production is shut in,” said Rystad Energy analyst Louise Dickson.

“This is the most dismal oil demand picture we have witnessed in a long time with a simultaneous collapse in jet fuel, gasoline, shipping fuel, petrochemicals, and oil used for power generation,” she added.

WTI has dropped 43.9% in March, putting it on pace for its worth month on record, back to the inception of the contract in 1983. The contract is squarely in bear market territory, currently trading 66.32% below its most recent 52-week high of $66.60 hit on April 23, 2019.