Oil begins April on down note as U.S. supplies climb a 10th week in a row
Oil futures finished Wednesday with a modest loss, weighed down at the start of the month by U.S. crude supplies which were up for a 10th straight week.
Traders also contended with the destruction of oil demand by the COVID-19 pandemic and a price war between Saudi Arabia and Russia that promises to flood the world with unneeded crude.
The market is seeing “the amount of oil that is now being produced as threatened and promised by Saudi Arabia,” said Tariq Zahir, managing member at Tyche Capital Advisors.
“With demand destruction across the globe, and now with Saudi flooding the markets with oil, we feel it is only a matter of time before oil is trading in the teens and perhaps the low teens,” he told MarketWatch.
“The additional shelter in place by governors in the US and seeing the same in Europe will only continue to destroy any type of demand for crude oil and products, Zahir added.
West Texas Intermediate crude for May delivery CL.1, 1.465% fell 17 cents, or 0.8%, to settle at $20.31 a barrel on the New York Mercantile Exchange after dropping to as low as $19.90. June Brent crude BRNM20, 0.647% dropped $1.61, or 6.1%, to $24.74 a barrel on ICE Futures Europe.
For the first quarter, WTI, the U.S. benchmark, lost 66.5% to post the largest quarterly percentage loss based on records dating back to March 1983. Brent, the global benchmark, saw a loss of 65.6% for the quarter—the largest quarterly decline based on records dating to June 1988.
“The commodity is by far one of the biggest losers from the coronavirus outbreak....[and] with the commodity heavily pressured by widespread lock-downs across the globe and raging prices war between Saudi Arabia and Russia, the outlook is certainly gloomy,” said Lukman Otunuga, senior research analyst at FXTM.
“Sustained weakness below $20 may drag WTI crude lower towards $15 if nothing changes,” he said.
The Energy Information Administration early Wednesday revealed that U.S. crude supplies rose by 13.8 million barrels for the week ended March 27, marking a 10th straight weekly increase.
Analysts polled by S&P Global Platts expected the data to show a rise of 4.6 million barrels. The American Petroleum Institute on Tuesday reported a climb of 10.5 million barrels, according to sources.
The EIA data also showed a supply increase of 7.5 million barrels for gasoline and a decline of 2.2 million barrels for distillates. The S&P Global Platts survey had shown expectations for a supply rise of 3.6 million barrels for gasoline, but distillate stockpiles were expected to fall by 600,000 barrels.
On Nymex, May gasoline RBK20, -7.036% dropped 4.6 cents, or 7.8%, to 54.65 cents a gallon, while May heating oil HOK20, -6.540% lost 6.9 cents, or 6.9%, to 93.23 cents a gallon, the lowest front-month contract settlement since January 2016, according to Dow Jones Market Data
Ahead of the EIA’s weekly data on U.S. natural-gas supplies due Thursday, May natural gas NGK20, -3.293% settled at $1.587 per million British thermal units, down 5.3 cents, or 3.2%. Prices have returned to their lowest level since 1995.
As for oil, “the Saudis will boost supply this month, as part of their price war with Russia, and the market expects to see more than 2 million barrels a day of additional supply coming from Saudi Arabia alone,” said Warren Patterson, head of commodities strategy at ING, in a note. “Expectations are that the Saudis will also keep the pressure on in May, with most in the market expecting that they will make further cuts to their official selling prices then.”
Russia also has scope to raise production while other major producers are also scrambling to preserve or build market share. The price war was triggered in early March after Moscow rejected a call by Saudi Arabia for a deeper round of output cuts in response to the demand hit expected from the COVID-19 pandemic. A round of existing production curbs expired on Tuesday.
“The scale of the surplus over 2Q20 and the continued weakness in prices does mean that pressure from the U.S. to try to stabilize the market will continue to build over the next quarter. However we still believe that any potential action taken by OPEC+ in the coming months will fall short of bringing the market back to balance,” Patterson said.