Oil tumbles to 18-year low as coronavirus shrinks China's GDP
U.S. oil prices plunged Friday after China reported its gross domestic product shrank for the first time since recordkeeping began in 1992 as the economy was shut down to slow the spread of COVID-19.
West Texas Intermediate crude oil for May delivery tumbled by as much as 9.9 percent to $17.90 a barrel, its lowest since 2001.
“Lingering
weakness in domestic demand alongside an extended period of global
weakness will probably prevent GDP from returning to its pre-virus path
until at least the middle of next year even amidst the ramp-up in policy
stimulus,” wrote Julian Evans-Pritchard, a Singapore-based senior China
economist at the research firm Capital Economics.
China’s
first-quarter gross domestic product fell 6.8 percent year-over-year in
the January-to-March period, according to the National Bureau of
Statistics, larger than the 6 percent drop that economists surveyed by
Reuters were expecting.
The
sharp economic contraction is a preview of things to come for the rest
of the developed world, including the United States, as the COVID-19
pandemic originated in China, impacting its economy first.
Slower
economic growth means there will be less demand for oil and its
byproducts, including gasoline and jet fuel. In a report out Thursday, OPEC said global demand will fall
by 6.9 million barrels per day amid the COVID-19 pandemic. In a
separate report out Wednesday, the U.S. Energy Information
Administration said 9.3 million barrels per day of demand has been
zapped.
The
weaker demand exacerbates a supply glut that was made worse when a
price war broke out between Saudi Arabia and Russia on March 9.
In
virtual talks last weekend, the world’s largest oil producers reached
an agreement to trim global production by about 20 million barrels per
day in May and June.
OPEC
and its allies will lower output by 9.7 million barrels a day while the
rest of the cuts come from major players such as the U.S. and Canada,
mostly as a result of lower prices. The agreement also says OPEC
producers and their allies will reduce production by 7.7 million barrels
a day from July through next year.
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