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Oil futures: Prices tumble as coronavirus measures slash travel demand

Highlights

NYMEX crude settles at $28.70/b

Prompt RBOB crack falls below $1/b

Traders shrug off stimulus packages

New York — Petroleum futures continued to tumble Monday, as measures taken to battle the spread of the coronavirus have dramatically reduced travel, slashing demand.

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ICE Brent settled at $30.05/b, down $3.80, while NYMEX front-month crude settled at $28.70/b, down $3.03.

NYMEX front-month RBOB settled at 68.99 cents/gal, down 20.93 cents, while front-month ULSD settled at $1.0466/gal, down 9.08 cents.

"Oil's worst-case scenario seems to be coming true," said OANDA analyst Edward Moya. "The coronavirus is paralyzing economies across the world and no-one has any clue how much worse it will get."

RBOB has been especially hard hit, as prohibitions on mass gatherings have limited driving demand. The RBOB crack spread vs. ICE Brent ended Monday at around 29 cents/b, down from $4.52/b Friday, and $15.50/b one month ago.

The June RBOB crack ended at around minus 30 cents/b, and the July crack at minus 58 cents/b.

In contrast, the May ULSD crack ended Monday at around $14.28/b, holding up relative to RBOB on confidence that industrial demand would not suffer the same fate as driving demand.

Central banks announced sweeping measures over the weekend to lessen the impact from the coronavirus pandemic, but the measures have failed to buoy sentiment.

The US Federal Reserve announced a cut to target interest rates to near zero alongside a $700 billion stimulus package. Meanwhile, Germany has become the latest country to restrict cross-border movements of people as the situation develops in Europe.

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"The price response is understandable given that lower interest rates and new bond purchasing programmes will do nothing to combat the current weakness of oil demand." Carsten Fritsch, from Commerzbank, said in a note Monday.

"The more countries 'freeze' public life, close their borders and cancel flights, the greater the impact will be on oil demand, especially as this also involves economic activity being generally scaled down," Fritsch added.

While demand is getting hammered, crude supply is set to increase, following the failure of OPEC and its allies to come to a production cut agreement.

There are currently few signs that negotiators might come to an agreement soon.

"The collapse of OPEC+ suggest that over the medium term that the supply side alone could warrant further selling pressure for Brent crude to test $20 level," Moya said.

Saudi Aramco said Monday it is "comfortable" with a $30/b oil price, and is ready to increase production to 12.3 million b/d in April.

However, if Brent falls to $15/b, Saudi Arabia may be more keen to come back to the negotiating table, Moya said.

"Currently, Aramco's pre-breakeven before dividend is oil at the $15 level and if prices crash to around there, Saudis may be more willing to see a return of production cut talks with OPEC members, possibly without the Russians," Moya said.