(Bloomberg) -- Oil is on track for its biggest weekly decline since 2008 as the coronavirus pandemic wreaks havoc on fuel demand and threatens global economic stability.
Futures in New York tumbled 4.5% on Thursday and are on track for a 24% weekly drop. President Donald Trump’s restriction on travel from Europe for the next 30 days, in an attempt to contain the coronavirus, darkened the outlook for fuel demand. At the same time, Brent crude’s one-year structure collapsed into a supercontango for the first time since 2015, suggesting a large oversupply as responses by the U.S. and European policy makers have failed to stem the price rout.
The fear of an economic crisis reverberated across U.S. equities triggering a 15-minute New York Stock Exchange-mandated halt in trading for the second time this week. The S&P 500 plunged into a bear market and the Dow Jones Industrial Average fell 10% in its biggest rout since Black Monday in 1987.
“This is a downward spiral” said Michael Lynch, president of Strategic Energy & Economic Research Inc. “This collapse is inciting the fear this will be a full blown recession. The pain is going to be so sharp for everybody.”
Trump proposed tax relief measures to stave off the risk of a recession, but stopped short of providing a detailed economic rescue package. Meanwhile, the European Central Bank left rates unchanged, though it temporarily increased its quantitative easing program and took steps to boost liquidity.
Crude spiked to unprecedented levels of volatility as the coronavirus pandemic cripples demand amid travel disruptions worldwide and as a battle for market share by the world’s largest oil producing nations escalates further. In another sign of weakness in the energy complex, gasoline futures in New York plunged 19% to the lowest level in more than a decade on Thursday.
“This is the capitulation day for gasoline,” said Walter Zimmermann, chief technical strategist at ICAP Technical Analysis. “The virus has magnified the chronic glut and today was a reckoning.”
Amid the escalating market-share battle, Russian oil producers doubled down on Thursday saying they are able to operate even if prices drop further and will ramp up production beginning April 1. The Kremlin earlier said it has no plans for oil talks with Saudi Arabia.
“All bets are off,” said Leo Mariani, equity research analyst at KeyBanc Capital Markets. “It’s clear the price battle may not be over in the short term. Having a supply and demand crisis at the same time is unprecedented. It’s going to be a painful time.”
Saudi Arabia is unleashing a wave of crude toward Europe, traditionally the backyard for Russian sales, pledging to supply refineries with as much as three times their usual intake from the kingdom. There’s a prospect of a prolonged battle, as analysts from Bank of America Corp. to Raiffeisenbank expect Russia’s low production costs, flexible tax system and free-floating ruble will allow its producers to respond.
(An earlier version corrected reference to pandemic.)
--With assistance from James Thornhill, Elizabeth Low and Alex Longley.
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