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Oil Slump Deepens After Trump Limits Travel in Blow to Demand


By Elizabeth Low and Alex Longley

(Bloomberg) Oil slumped further after President Donald Trump said the U.S. would restrict travel from Europe for the next 30 days in an attempt to contain the coronavirus, pummeling fuel demand.Futures in London fell as much as 7% with the market’s structure continuing to collapse. Trump also called on Congress to pass some tax relief measures immediately, but stopped short of offering a detailed economic rescue package. His briefing on Wednesday failed to soothe broader markets, with the global stock rout deepening.Crude has lost around a quarter of its value this week as the pandemic savages the demand outlook, while Russia, Saudi Arabia and other Middle East nations jostle to raise production and fight for market share. Producing nations are offering unprecedented discounts and the oil market’s structure has plummeted to its weakest since 2015.

Brent's six-month timespread has weakened to its widest contango since 2015

The travel ban “will undoubtedly further impact demand for oil,” said Jack Allardyce, analyst at Cantor Fitzgerald. “There is clearly scope for wider measures globally, which could further hit underlying demand for oil.”

As oil tumbles, Saudi Arabia is unleashing a wave of crude on Europe, traditionally the backyard for Russian sales, pledging to supply refineries with as much as triple 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.

As well as the capitulating structure, the oil market has seen unprecedented levels of volatility. After pulling back from its highest level in data going back to 2010 on Wednesday, a key gauge of WTI fluctuations remains above 100%, still 39 percentage points above a previous record.

While its members flood the market with oil, the Organization of Petroleum Exporting Countries slashed its demand growth forecast for this year on Wednesday by 920,000 barrels a day to 60,000. It could get some relief after the Energy Information Administration forecasts U.S. oil production will fall next year for the first time since 2016 with the price crash already forcing drillers to cut back on capital spending.

Prices
  • Brent crude fell 5.9% to $33.69 a barrel on the ICE Futures Europe exchange as of 10:37 a.m. in London.
  • West Texas Intermediate declined as much as 7% and was 5.6% lower at $31.15 a barrel on the New York Mercantile Exchange.


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