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
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
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%.
“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.”
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
fell by 3.8% to 52.31 a gallon, poised for a weekly loss of nearly 14%. April heating oil
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
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
traded at $1.674, down 0.9%.