Oil prices fell below US$30 a barrel on Monday as the worldwide coronavirus outbreak worsened over the weekend, exacerbating fears that government lockdowns to contain the spread of the disease would spark a global recession.
Top global oil producers Saudi Arabia and Russia have failed to agree on how to react as the reduction in global economic activity destroys oil demand, and have turned on each other to start a price war, Reuters said.
Saudi Aramco reiterated on Monday its plans to boost output to record levels to take a bigger share of the global market.
Brent crude LCOc1 was down $3.75, or 11.1%, to $30.10 a barrel by 1:26 p.m. EDT (1726 GMT). The international benchmark earlier fell to $29.52 a barrel, its lowest since January 2016.
U.S. West Texas Intermediate (WTI) crude CLc1 fell $2.45, or 7.7%, to $29.28 a barrel.
Saudi Aramco is likely to sustain higher oil output planned for April in May, Chief Executive Amin Nasser said, signaling the top oil-producing company is prepared to live with low oil prices for a while.
The coming flood of supply from Saudi Arabia and other producers could result in the largest surplus of crude in history, said global information provider IHS Markit.
The coronavirus outbreak, which has infected at least 174,000 people and killed around 6,700, already has caused oil prices to plummet by 50% since the start of the year. Many forecasters have adjusted down estimates on demand for crude, as the virus disrupts business activity, travel and daily life.
With Saudi Arabia and Russia pledging to boost production, IHS Markit estimates that oversupply of oil could come to 800 million to 1.3 billion barrels. The projection is two to three times what existed in late 2015 to early 2016, when the Organization of the Petroleum Exporting Countries pumped more oil to combat the growing U.S. shale industry.
"The last time that there was a global surplus of this magnitude was never. Prior to this, the largest six-month global surplus this century was 360 million barrels. What is coming will be twice that or more," said Jim Burkhard, vice president and head of oil markets at IHS Markit.
An OPEC and non-OPEC technical meeting planned for Wednesday in Vienna has been called off as attempts to mediate between Saudi Arabia and Russia after the collapse of their supply cut pact made no progress, sources said.
Central banks globally took action over the weekend to try to quell the economic fallout of the pandemic, but the measures did little to strengthen stock markets in freefall, as investors anticipate a sharp contraction in demand in coming weeks anyway.
The U.S. Federal Reserve on Sunday slashed its key rate to near zero, triggering an unscheduled rate cut by the Reserve Bank of New Zealand to a record low as markets in Asia opened for trading this week.
The Bank of Japan later stepped in by easing monetary policy further, while Gulf central banks also cut interest rates.
"The price response is understandable, given that lower interest rates and new bond purchasing programs will do nothing to combat the current weakness of oil demand," Commerzbank analyst Carsten Fritsch said.
In China, where the virus began, daily refinery throughputs dropped 4.8% in the first two months of the year, sliding to the lowest level since December 2018, data from the National Bureau of Statistics showed on Monday.
Brent's premium to WTI CL-LCO1=R narrowed to less than $1, falling to its lowest since 2016, making U.S. crude oil uncompetitive in international markets.