Crude oil prices dropped as much as 9% on Wednesday to $24.42 a barrel, the lowest levels since June 2002, as the ongoing coronavirus pandemic hampers demand.
The price of light crude oil is down 60% so far this year.
At the same time, Russia and Saudi Arabia are failing to limit supply. Russia is refusing to cut production while Saudi Arabia cut prices and increased production in an already over-supplied market.
“With each day there seems to be yet another trapdoor lying beneath oil prices,” Rystad Energy analyst Louise Dickson told CNN. “What we are seeing here is essentially the atomic bomb equivalent in the oil markets.”
Rystad is forecasting oil demand will drop by 2.8 million barrels per day in 2020, versus its previous forecast of a 600,000 barrel-per-day drop. Goldman Sachs is now calling for a demand drop of 1.1 million barrels per day for 2020, with a drop of 8 million barrels per day in March.
Rystad said it expects demand in April to fall by 11 million barrels per day.
Goldman said U.S. oil prices face an “inevitable fall” to around $20 during the second quarter, which would be down from previous forecasts of a $29 per barrel.
The decrease in air traffic demand is a key driver of the price drop. Rystad has said global commercial air traffic will drop by about 20% this year.
Meanwhile, AAA said the average price of gasoline in the United States has fallen to $2.22 per gallon, down from $2.44 last month, while gas prices in 35 states fell by double-digits.
“AAA expects gas prices to continue trending cheaper, with the high likelihood of the national average hitting $2/gallon before the end of March,” a spokesperson for the group said.
In a note to clients, Damien Courvalin, head of energy research at Goldman Sachs, said that storage capacity could become a problem as supply continues to outstrip demand.
“We believe the velocity of the upcoming inventory builds is now certain to overwhelm the ability to fill storage,” Courvalin said.