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Oil drops below $20 barrel mark in 18-year low for US producers

Oil producers have been hit hard by low prices [Getty]

Date of publication: 30 March, 2020

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US oil has dropped below $20 a barrel, impacted by the coronavirus crisis and over production.
Oil prices crashed below the $20 a barrel mark on Monday for some US producers, as a supply glut and the coronavirus crisis pushed Brent to a 18-year low.

The oil price drop has seen US West Texas Intermediate (WTI) oil prices fall to $19.92 a barrel and Brent fall over 8 percent to $22.58. 

The low oil prices means that for many companies it is no longer profitable to continue to pump oil, meaning that many will cut production. 

The low oil prices have been impacted by a massive drop in demand due to the coronavirus crisis and Gulf states increasing production to price out other producers.

"Global oil demand is evaporating on the back of Covid-19-related travel restrictions and social distancing measures," UBS oil analyst Giovanni Staunovo told Reuters.

"In the near term, oil prices may need to trade lower into the cash cost curve to trigger production shut-ins to start to prevent tank tops to be reached."

Despite the production push likely to put many oil companies in the US and elsewhere out of business, Gulf states will also be hard hit by the low prices.

Saudi Arabia, which is behind the increase in production, needs an oil price of $82 a barrel to break even. It will likely have to dig into reserves or borrow to balance its budget this year.

Added to this, the low oil prices and corona crisis have also hit non-oil sectors in the Gulf hard, which are seen as key areas for growth and long-term diversification plans.

Saudi Arabia has rolled out a $32 billion stimulus package to help companies cope with the crisis, while other Gulf states have also been forced to make cash injections to keep their economies afloat.

Hardest hit in the GCC will be countries such as Oman, which has fewer cash reserves to rely on and still waiting for major gas production projects to go online.

"It may seek bailout from the UAE, but how and from whom it seeks bailout will be telling. Bahrain is similarly exposed yet with fewer energy resources. Nonetheless, it can turn to Saudi Arabia and the UAE for financial support, as it has done in the past," Courtney Freer wrote for The New Arab. 

Other countries in the Middle East, such as Syria and Jordan, will benefit from the low oil prices but a devaluation of the Syrian pound will make it more expensive to import. 

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