With little good news making headlines these days, the oil price continues to struggle.

While the stock markets saw a brief historic rise this week, we need to remember, its starting base was from a record low.

In Friday trading, Brent crude was priced around US$25 with WTI holding below US$22 a barrel.

The deadly combination of a global economic slowdown at a time of low demand for oil, in the midst of a major pandemic leaves the market on hold. The additional frustration caused by the daily uncertainty of a fast spreading disease has investors on the side lines. 

A US$5 trillion pledge

Global leaders held an extraordinary video G-20 meeting this week, promising to make more than US$5 trillion available as economic stimulus to deal with the impact of the coronavirus.

The Chinese President Xi Jinping called for greater cooperation on an international level to combat the economic fallout from the virus.

International news channels are holding daily live briefings to bring the world up to date with the spread of the virus.

The British Prime Minister, Boris Johnson announced he has tested positive, but pledged to continue to lead his team from home where he is in quarantine. According to the Johns Hopkins Medicine daily toll of cases, its estimated that the UK is dealing with more than 11,800 cases.

Numbers in the US continue to rise, currently around 86,000 and taking the lead from China and Italy at a time when unemployment has risen to 3.3 million people.

This is the highest unemployment figure on record with many analysts expecting worse to come and the US Treasury Secretary Steve Mnuchin bracing for a possible 20 percent jobless rate.

Fewer jobs and curtailed spending mean lower energy demand as less people drive and fly  and industry slows down. Despite the optimistic presidential briefings from Donald Trump with talk of everyone getting back to work soon and churches re-opening by Easter, corona cases in the US continue to rise on a daily basis.

Oil majors and oil service companies have begun to lay off staff like every other business and the International Energy Agency believes that we could see oil demand drop by around 20 percent.

Budget cuts and layoffs

Many companies are talking of budget cuts and more layoffs due to uncertainty and lack of future demand. More than 3 billion people are in lockdown around the world, with major international air carriers cancelling routes every week.

The OPEC production adjustment agreements ends next week, and the market is expecting more supply from Russia, Saudi Arabia and the United Arab Emirates. The US is in talks with Saudi Arabia and much is being reported about a possible future alliance.

The US Energy Secretary Dan Brouillette said that this is just one of the many ideas being considered as his department looks to “engage in a diplomatic effort” at some stage.

The US Secretary of State, Mike Pompeo spoke to Saudi Arabia’s Crown Prince Mohammed bin Salman this week urging him to “rise to the occasion” and help prevent further decline in the oil price.

Adding to the oil market complications could soon be a shortage or lack of storage space. Oil storage levels around the world are reported to be about three-quarters full. Energy consultancy Rystad Energy says Canada could be days away from sufficient storage for its domestic production, adding that producers in Western Canada may have to reduce production by about 400,000 barrels a day.

Looking to the sea

With a shortage of on-shore facilities, the world could begin looking to store in tankers at sea and Rystad reports that Saudi Arabia has already embarked on a “vessel booking spree.” Rystad has warned that if conditions continue to deteriorate, the oil price could fall to US$10 at some stage this year.

With a clear over-supply of oil in the world, the market will be bracing itself to see what oil leaves Saudi Arabia next week.

Even at lower prices, European refiners say they already have enough oil. The clear danger is another fall in oil prices and many analysts and experts say that even Saudi Arabia won’t want to see that happening.