Oil prices fall to 18-year lows of under $21 a barrel as coronavirus outbreak hits demand
Oil prices fell to 18-year lows of under $21 a barrel yesterday as the coronavirus outbreak hit demand.
Fears are growing that crude could plunge as low as $10 because the world is rapidly running out of space to store unused oil.
A further slump could deal a huge blow to savers if it means oil giants such as BP and Shell have to consider cutting their dividends.
Blow: Fears are growing that crude could plunge as low as $10 because the world is rapidly running out of space to store unused oil
Many investment funds and pension plans rely on generous payouts from energy firms. Demand for oil has plummeted during the coronavirus pandemic as widespread travel restrictions and lockdowns have slashed the need for jet fuel and, increasingly, petrol.
Oil was trading at $69 a barrel at the start of this year but has fallen by around two-thirds. Prices slid by as much as 12 per cent yesterday, hitting lows of $20.77, a level not seen since 2002.
The world was consuming around 100m barrels of oil a day before the coronavirus outbreak, but Goldman Sachs analysts believe this will fall by a quarter – or 26m barrels – this week.
In theory, there is enough storage to last for nine months, but constraints at many facilities mean this window will shorten to only a few months.
Some refineries have shut down and many firms have curbed production, though Goldman has also warned this could lead to huge shortages and a price spike once travel restrictions are eased.
Shell and BP paid £18.3 billion out to investors through dividends last year. But some investors have already said a cut to dividends would be a better option than building up more debt.
Jeffrey Germain, a director at Brandes Investment Partners, which invests in European oil firms, said: ‘Long term, it is appropriate to cut the dividend.’