Oil prices fell for the second straight day on Thursday amid a broad decline in global markets after the United States banned travel from Europe following the World Health Organization’s decision to declare the coronavirus outbreak a pandemic.
The slump in oil is being compounded by the threat of a flood of cheap supply as Saudi Arabia and United Arab Emirates promised to raise output to a record high in a standoff with Russia.
Brent crude was trading down $1.65, or 4.6%, at $34.14 by around 0718 GMT, a little above earlier lows. The contract fell nearly 4% on Wednesday.
U.S. crude was down $1.38, or 4.2%, at $31.60 after also dropping 4% in the previous session.
The two benchmarks are down about 50% from highs reached in January and had their biggest one-day declines on Monday since the 1991 Gulf War after Saudi Arabia launched a price war.
The price difference between near-term and longer-term Brent prices also widened to the most in five years, prompting traders to fill tankers with oil to store for later delivery when they are betting prices will be higher.
Global shares were also down on Thursday after U.S. President Donald Trump said the United States will suspend all travel from Europe as he unveiled measures to contain the coronavirus epidemic.
The travel ban, which excludes Britain, will hit U.S. airlines “extremely hard”, their industry association said.
The surprise move is likely to mean a further drop in demand for jet and other fuels in an already battered oil market, although just how much is hard to quantify.
“This is what a large positive supply shock and a large negative demand shock looks like,” said Lachlan Shaw, head of commodities research at National Australia Bank in Melbourne.
“It’s hard to come up with a more bearish scenario.”
The United Arab Emirates followed Saudi Arabia in announcing plans to boost oil output after the collapse last week of an agreement between OPEC, Russia and other producers, a grouping known as OPEC+, to withhold supply and buttress prices.
UAE’s national oil company, ADNOC, said it plans to raise crude sales to more than 4 million barrels per day (bpd) and accelerate a push to boost capacity by a quarter to 5 million bpd.
“Without OPEC+, the global oil market has lost its regulator and now only market mechanisms can dictate the balance between supply and demand,” said Espen Erlingsen, head of upstream research at Rystad Energy, which estimates that oil will need to fall to the low $20s to achieve equilibrium.