* Brent down 8%, WTI down 6%
* Trump restricts travel to United States from Europe
* Oil dives into steepest contango since Feb 2015
* Booking frenzy sends tanker rates soaring
* Graphic on revised demand forecasts: https://tmsnrt.rs/2TTFao7
(Updates to settlement)
By Devika Krishna Kumar
NEW YORK, March 12 (Reuters) - Brent crude slid 7% on
Thursday after President Donald Trump restricted travel to the
United States from Europe as part of measures to try to halt the
spread of coronavirus after the World Health Organization
described the outbreak as a pandemic.
A flood of cheap supply coming onto the market from Saudi
Arabia and the United Arab Emirates compounded pressure on
prices. The Gulf Arab producers are raising production as they
go on the offensive in an oil price war with Russia.
Brent crude LCOc1 was down $2.57, or 7.2%, at $33.22 a
barrel while U.S. West Texas Intermediate Texas crude CLc1 was
down $1.48, or 4.5%, at $31.50.
Global equities plunged and the Dow Jones index was on
course for its worst performance since Wall Street's "Black
Monday" crash of 1987 after Trump announced the travel
restrictions. Prices pared losses briefly after the Federal Reserve Bank
of New York said it would increase Treasury purchases and
introduce new repo operations, but the bounce faded quickly
across markets.
"Global market carnage continues as Wall Street struggles to
grasp how long the global pandemic will disrupt travel, trade
and daily life," said Edward Moya, senior market analyst at
OANDA in New York.
"Brent crude seems poised to sell off another 10% here as
the demand outlook seems like it will only get worse."
Global oil demand is set to contract in 2020 for the first
time in more than a decade, with the International Energy Agency
this week lowering its annual forecast by almost 1 million
barrels per day, or 1% of global demand. Demand in the first quarter has fallen sharply on the year,
mostly because of the impact of the virus on economic activity
in China.
Both Brent and WTI are down about 50% from highs reached in
January. They suffered their biggest one-day declines since the
1991 Gulf War on Monday after Saudi Arabia launched a price war.
The six-month Brent contango spread LCOc1-LCOc7 from May
to November widened to as much as $7.31 a barrel, a level not
seen since January 2015.
Contango is where the futures price of a commodity is higher
than the price to buy it now. That encourages oil firms and
traders to pump oil into storage - either on land or in tankers
at sea - with an aim to sell it later at a profit.
The cost to transport oil on supertankers soared as major
producers scrambled to secure vessels to ship more crude and
companies looked for vessels for storage.
As top oil exporter Saudi Arabia moved quickly to boost
output, Russia stuck by the decision that led last week to the
collapse of its alliance with Riyadh and other producers. Moscow
said that there was no point cutting output because it would
likely be too little to compensate for the virus' impact on
global demand. For now, both sides are digging in for the price war, said
Ehsan Khoman, head of MENA research and strategy at MUFG.
"We believe that both sides have enough financial capacity
and sufficiently divergent goals to sustain the oil price war
for many quarters, not months," he said.
Saudi Arabia has already stepped up efforts to squeeze
Russia's Urals oil grade out of its main markets by offering its
own cheap barrels to refiners worldwide that buy Russian crude,
seven oil sources said.
With demand falling sharply and output rising quickly, the
market is facing a big surplus in April. Estimates for the scope
of the glut vary. It could be as much as 6 million bpd, said
Kirill Tachennikov, director and senior oil analyst at BCS
Global Markets in Moscow.
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GRAPHIC: Oil price forecasts dim after price war begins https://tmsnrt.rs/3aNrK3Q
Brent crude oil forward curve https://tmsnrt.rs/38HMatE
Brent contango https://tmsnrt.rs/2IGINZa
Brent contango spread widens png https://tmsnrt.rs/2WdNzWh
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