Oil posts biggest weekly loss since 2008

Oil prices moved modestly higher on Friday, but posted their worst weekly drubbing since the 2008 financial crisis, as investors eyed evaporating demand from the coronavirus pandemic and a production ramp-up by top producers. Brent crude was up 82 cents, or 2.5%, to trade at $34.04 per barrel, after falling more than 7% on Thursday. For the week, Brent is set to fall around 24%, the biggest weekly decline since December 2008, when it fell nearly 26%.

U.S. West Texas Intermediate crude gained 0.7%, or 23 cents, to settle at $31.73 per barrel. For the week, WTI fell more than 22% for its worst week since the financial crisis.

“It’s been a very rough week and so it’s not impossible people are locking in ahead of the weekend,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“I would also point out that in the context of the recent moves it’s not really a major move,” he added, noting that “volumes are terrible” and down significantly on average.

Just as travel bans, canceled events and other economic disruptions eat into crude demand, major oil producers are planning to add more crude to an oversupplied market.

A flood of low-priced oil from Saudi Arabia, the world’s largest exporter, and the United Arab Emirates is intensifying the pressure on prices after the collapse of a price supporting agreement with Russia last week.

“The surge in low-cost production is signicantly larger than expected with the collapse in demand due to the coronavirus looking increasingly broad,” said Goldman Sachs, which now expects what it said would be a record high oil surplus of 6 million bpd by April.

Russia, the world’s second-largest producer, does not appear willing to return to its agreement with the Organization of the Petroleum Exporting Countries (OPEC). Domestic oil producers met with Russian Energy Minister Alexander Novak on Thursday but did not discuss returning to the deal, with the head of Gazprom Neft saying they plan to raise output in April.

“Both Russia and the Saudis are digging in deeper,” said Stratfor oil analyst Greg Priddy. Elsewhere equities markets retraced earlier heavy losses after U.S. markets fell by the most since Black Monday in 1987 on Thursday after U.S. President Donald Trump announced a ban on travel to the United States from Europe. U.S. energy historian Daniel Yergin said it may be some time before oil markets are relieved as the coronavirus courses through the world and disrupts daily life while Saudi Arabia and Russia try to flood market.

However, the price slump may be doing the work needed to reduce supply. Energy companies in the U.S., the world biggest crude producer, are preparing to cut investment and drilling plans because of the plunging prices.

“That will create an enormous inventory build, 100-150 million barrels a month,” he told MarketWatch. But the very sharp price fall “seems likely to encourage the Russians to offer some kind of deal to the Saudis that would see a brief, but sharp production drop.”

West Texas Intermediate crude for April delivery CL.1, +3.90% on the New York Mercantile Exchange rose 23 cents, or 0.7%, to settle at $31.73 a barrel, while May Brent crude BRNK20, +3.30% added 63 cents, or 1.9%, at $33.85 a barrel on ICE Futures Europe.

For the week, WTI fell 23%, while Brent lost 25% with both marking their biggest weekly percentage declines, based on the front-month contracts, since December 2008, according to Dow Jones Market Data. A combination of growing fears over the demand hit from the coronavirus pandemic and Saudi Arabia’s launch of a price war against Russia, that threatens to flood an alreadyoversupplied market with more crude.