Oil prices fall as plunge in global demand sets prices up for a 5th straight weekly drop

Oil futures declined on Friday, as a huge drop in global demand as a result of the spread of COVID-19 set prices up for a fifth straight weekly drop, even as the U.S. House looks to pass a fiscal stimulus package to ease the economic hardship caused by the pandemic.

For oil, “the focus continues to rest on the demand side of the market, with global demand expected to extend its record decline in the weeks ahead as a growing number of countries implement lockdown measures,” said Robbie Fraser, senior commodity analyst at Schneider Electric.

“Until demand begins to recover, any negotiations between Saudi Arabia and Russia to restore” the production cuts by the Organization of the Petroleum Exporting Countries and its allies, “or continued efforts by Saudi Arabia to flood the market, will look relatively unremarkable compared to the scale of demand loss,” Fraser said in a daily note. The current OPEC+ output cuts expire at the end of this month.

“From an economic standpoint, US and Canadian production is under extreme stress under current prices and is expected to drop in the months ahead,” he added.

West Texas Intermediate crude for May delivery

CLK20, -5.66%

 fell $1.14, or 5%, at $21.46 a barrel on the New York Mercantile Exchange, with prices for the front-month contract trading more than 5% lower for the week, according to FactSet data.

May Brent crude

BRNK20, -6.99%,

the global benchmark, fell $1.58, or 6%, to $24.76 a barrel on ICE Futures Europe, headed for a weekly loss of around 8%.

Both front-month benchmarks were on track to tally a weekly decline, which would be their fifth in a row.

“With Saudi Arabia attempting to flood the oil market by ramping up production to counter Russia, oil prices have halved this month…prompting countries to stockpile under the low prices,” said Mihir Kapadia, chief executive offer of Sun Global Investment, in emailed commentary.

Oil prices have collapsed in March, with the near-lockdown of major economies in response to the COVID-19 pandemic slashing demand for crude. Month to date, WTI and Brent prices have each lost roughly 50%.

Read about the MarketWatch PetroCurrency Index

“Oil stockpiles around the world climbed up as major refineries in core markets such as China were shutdown due to the pandemic,” said Kapadia. “According to industry reports, oil storage levels globally have already reached 75% of capacity, and continued stockpiling under closed demand would crash the prices to $10 in the coming months unless industrial activity restarts.”

See: The world is running out of tanks to store oil as coronavirus and price war lead to flood of crude

Oil saw a three-day rebound come to an end Thursday, losing ground even as U.S. stocks soared in a move apparently sparked by relief over the U.S. Senate passage of a $2 trillion stimulus bill, which is expected to win House passage on Friday. That comes as the cases of COVID-19 in the U.S. overtook China, where it reportedly originated. There are now nearly 86,000 confirmed cases of the disease in the U.S., according to data compiled by Johns Hopkins University.

Analysts said oil will likely continue to struggle with the oversupply picture in the near term but contend the market could begin to rebalance once the pandemic subsides.

“We expect that these low prices will eventually rebalance the market through stronger demand growth as the COVID-19 recession recedes and rapidly falling U.S. shale production. The plummet in prices has already forced many large E&P companies to slash their capital budgets (and dividends) and we expect the same across the industry,” said Jason Gammel, energy analyst at Jefferies, in a note.

“Ironically, this swift and severe price downturn could lay the groundwork for a significantly under-supplied market beyond 2021, albeit one with bloated inventories,” he said.

Back on Nymex, April gasoline

RBJ20, -3.53%

 fell by 3.8% to 52.31 a gallon, poised for a weekly loss of nearly 14%. April heating oil

HOJ20, +0.75%

 tacked on 1.1% to $1.062 a gallon, with prices looking at a weekly rise of around 5.5%.

The front-month April natural gas contract

NGJ20, -1.47%

 lost 1.2% to $1.617 per million British thermal units, ahead of its expiration at the day’s settlement. It was up around 0.8% for the week. The soon-to-be front month May contract

NGK20, -1.12%

 traded at $1.674, down 0.9%.

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The Dow marked its 2nd straight gain — but Thursday jobless claims may pose the stock market’s biggest test amid coronavirus

Jobless claims haven’t been a focal point for investors for more than a decade, but market participants will be keenly watching Thursday’s figures because they could provide the clearest sign yet of the damage wrought by lockdowns that have swept across much of the U.S. to mitigate the spread of the COVID-19.

“’How will the markets survive the U.S. initial claims going ballistic?’ is probably on everyone’s minds this morning” wrote Stephen Innes, chief global markets strategist at AxiCorp.

Check out: Jobless claims set to soar by the millions as layoffs surge due to coronavirus shutdowns

Market participants are bracing for a number that could run into the millions — figures that are likely to bring to an abrupt end the first win streak for the Dow Jones Industrial Average

DJIA, +2.39%

and the S&P 500 index

SPX, +1.15%

since early February.

With one out of every five Americans under some form of stay-at-home measure to help lessen the spread of the illness that was first identified in Wuhan, China, in December, some economists are anticipating that as many as 5 million workers will show as applying for unemployment insurance in the coming weekly report. It is a staggering number that some market participants say is too large to discount and one that will likely knock the air out of a market that is searching for its footing higher.

See: 23 million American jobs in immediate danger from the coronavirus crisis

“We realize freakishly bad economic data is coming,” wrote Fundstrat Global Advisors’ Tom Lee in a Wednesday research note. “On Thursday, some economists are projecting weekly jobless claims to surge to as high as 5 million,” he wrote.

“Many of our more active and tactical clients are short into this, arguing that such wildly bad news cannot be discounted and thus, this ‘tape bomb’ should lead to a big sell-off,” he said.

On Tuesday, BTIG analysts Julian Emanuel and Michael Chu said that if a $2 trillion coronavirus rescue package being voted on by lawmakers late Wednesday wasn’t approved by the time those gut-wrenching numbers come out on Thursday, it would likely knock the wind of the market’s sails.

The BTIG researchers wrote that the “psychology of such a large weekly claims number without a deal done will inflict incrementally larger damage” on an already fragile market.

The Senate late Wednesday approved the relief bill, which is designed to shield the economy from the pandemic that has halted normal business and personal activity.

“The problem is new jobless claims will measure the extent of U.S. policy failure, and with the Congress dilly-dallying, it will not help the matters,” wrote Innes.

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Gold prices extend rise above $1,600, set for 5th straight gain

Gold futures rose on Wednesday, putting the precious metal on track to register a fifth straight gain, as investors continued to buy the safe haven asset, even though securities seen as risky also gained altitude on the back a slowdown in the spread of China’s coronavirus.

Some investors have attributed the climb in bullion, despite some factors that should weigh on it, to comparatively weaker government bond yields and a Federal Reserve that has kept interest rates low.

“Meanwhile, gold continues its move higher in the face of a stronger dollar and that is because real rates continue to decline and I remain very bullish on gold,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group, in a Wednesday research report.

Gold for April delivery

GCJ20, +0.35%

 on Comex rose $6, or 0.4%, at $1,609.60 an ounce after surging 1.1% on Tuesday, marking its highest settlement and intraday level for a most-active contract since March 2013, according to FactSet data.

Read: Why gold prices topped $1,600 and may soon hit a more than 7-year high

March silver

SIH20, +0.52%

 picked up 11.5 cents, or 0.6%, at $18.265 an ounce, extending its climb to its highest finish since early January of this year.

Read: Why silver prices may climb to their highest yearly average since 2014

The benchmark 10-year Treasury note yield

TMUBMUSD10Y, +0.22%

was at 1.559%, at last check. Low yields can make precious metals, which don’t offer a coupon, more attractive to investors.

The minutes from the rate-setting Federal Open Market Committee’s late January meeting are due out at 2 p.m. Eastern Time, a half-hour after metals settle on Comex. The Fed’s account of its January meeting could shed light on how the central bank is factoring the global economic impact of China’s epidemic.

While the FOMC at the January meeting was “unanimous in declaring the current stance of policy ‘appropriate,’ Powell noted in his post-meeting press conference that under a different policy framework, such as average inflation targeting, the conclusion could be different,” said Marshall Gittler, head of investment research at BDSwiss Group.

“We will be looking for any more detail about these alternative ways of managing monetary policy and which way the Committee is leaning,” he said in a note, adding that there could also “be some information about the Fed staff’s insight into the economic impact of the coronavirus.”

Meanwhile, gold briefly pared gains after U.S. economic data published early Wednesday.

The U.S. producer-price index jumped 0.5% last month, the largest gain since the fall of 2018. Economists polled by MarketWatch had predicted a 0.2% advance. And a report on housing showed that builders started construction on new homes in the U.S. at a pace of 1.57 million in January, the Commerce Department said Wednesday, representing a 3.6% decrease from a revised 1.63 million in December, but was 21.4% higher than a year ago.

Among other metals, March copper

HGH20, -0.44%

 edged down by 0.6% to $2.588 a pound.

April platinum

PLJ20, +1.17%

 added 1.3% to $1,006.30 an ounce, with prices for the most-active contract on track for its highest finish since Jan. 24, FactSet data show.

March palladium

PAH20, +3.96%

 added 3.9% to $2,594.90 an ounce, extending its climb to fresh records.

While many doubt the largest palladium supply deficit projections will be realized “due to softer Chinese auto catalyst inspired [platinum group metals] demand, it is possible that the explosion in prices will result in physical palladium supply being hoarded by investors,” analyst at Zaner Metals wrote in a daily note. That, in turn, “could effectively result in a lack of available supply for industrial uses.”

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