NEW YORK (Reuters) - Oil prices fell, with Brent crude sliding 8% on Thursday after U.S. President Donald Trump unexpectedly announced restrictions on travel from Europe in an attempt to halt the spread of coronavirus after the World Health Organization described the outbreak as a pandemic.
The slump in oil is being compounded by the threat of a flood of cheap supply after Saudi Arabia and the United Arab Emirates said they would raise output in a stand-off with Russia.
Brent crude was down $3.02, or 8.4%, at $32.77 a barrel by 12:19 p.m. ET (1619 GMT). U.S. crude was down $2.02, or 6.1%, at $30.96.
Global equities plunged into a bear market after President Trump said the United States would suspend all travel from Europe, except Britain and Ireland, as he unveiled measures to contain the coronavirus.
“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.
“The initial shock of Trump’s EU travel ban will deliver another blow to demand forecasts. Brent crude seems poised to selloff 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 bpd.
The two benchmarks 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 from May to November widened to as low 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 spot price, prompting traders to fill tankers with oil to store for later delivery.
The cost to transport oil on supertankers soared as major producers scrambled to secure vessels to ship more crude in an effort to regain market share and buyers took advantage of plunging oil prices.
As many await to see who will break first in the Saudi-Russia price war, Ehsan Khoman, head of MENA research and strategy at MUFG, said: “We believe that both sides have enough financial capacity and sufficiently divergent goals to sustain the oil price war for many quarters, not months.”
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 instead after their long-standing deal to support global oil prices fell apart, seven oil sources said.
“We estimate a production surplus could reach between 5 million and 6 million barrels per day in April,” said Kirill Tachennikov, director and senior oil analyst at BCS Global Markets in Moscow.
“However, despite the volatility, we expect to see global oil demand normalise as we move towards the second half of 2020 – likely without the need of OPEC intervention.”
Additional reporting by Bozorgmehr Sharafedin in London, Aaron Sheldrick in Tokyo; editing by Susan Fenton, David Goodman, Mark Potter and Diane Craft