Oil falls as Saudi, UAE plan for higher output capacity
LONDON:OIL prices fell on Wednesday after Saudi Arabia and the United Arab Emirates (UAE) announced plans to boost production capacity and the Organization of the Petroleum Exporting Countries (Opec) and the US Energy Information Administration (EIA) slashed oil demand forecasts because of the coronavirus outbreak.
Brent crude was down $1.01, or 2.7%, at $36.21 per barrel by 11.01 ET (1601 GMT), while US West Texas Intermediate (WTI) crude was off 92 cents or 2.7% at $33.44.
With the collapse of coordinated output cuts by Saudi Arabia, Russia and others, the Saudi energy ministry has directed producer Saudi Aramco to raise its output capacity to 13 million from 12 million barrels per day (bpd).
UAE national oil company Adnoc also said it would raise crude supply to more than 4 million bpd in April and accelerate plans to boost its output capacity to 5 million bpd, a target it previously planned to achieve by 2030.
“Saudi’s shock and awe strategy suggests to us that to bring Russia back to the negotiating table, it is serious in causing severe price and revenue pain for all oil producers,” UBS analysts said in a note.
“Higher oil inventories will likely weigh on prices over the coming months.”
Russian energy minister Alexander Novak said Saudi Arabia’s plans to increase production capacity were “probably not the best option”, adding Moscow had several phone calls with Opec and non-opec members, but that no partners had agreed to its proposal. global demand to rise by just 60,000 bpd in 2020, a reduction of 920,000 bpd from its previous forecast.
The EIA also said global oil demand is expected to dive by 910,000 bpd in the first quarter due to coronavirus outbreak.
Oil prices had climbed $2 earlier in the session on hopes that spending cuts by North American producers to cope with multiyear low crude prices would lead to a drop in output.
Numerous US companies have already cut back spending, including Occidental Petroleum Corp., Marathon Oil Corp. and Diamondback Energy Inc.
“Any reduction in spending and drilling will take time to show up in actual production figures and is unlikely to mitigate the bearish impact of a massive Saudi output increase, in case the latter does happen,” oil brokerage PVM’S Tamas Varga said. Weekly data on US inventories shows little effect from the coronavirus outbreak.
Crude stocks rose by 7.7 million barrels, but inventories of gasoline and diesel fell sharply, as refining runs remain at seasonally low levels.
“Demand for products is robust - which surprises me. It