Oil Market Outlook
Oil prices tumbled last week amid collapsing demand due to the coronavirus crisis, even as producers threatened to pump more crude in order to protect their market share from rivals.
US drillers last week idled 40 oil rigs, or 6% of the national total, as prices that have sunk by 65% this year make most US fields unviable. As well, a plan to support the industry by purchasing oil for the Strategic Petroleum Reserve was abandoned when Congress rejected a funding request.
Investors were heartened, however, by news of greatly expanded monetary support by the Federal Reserve, while US legislators approved a record $2-trillion stimulus plan to help businesses and workers.
West Texas Intermediate (WTI) crude fell 92 cents to close at $21.51 per barrel. Brent dipped $2.05 to $24.93 and Dubai crude averaged $24.94. Thaioil forecasts that WTI this week will trade between $20 and $25, and Brent between $23 and $28. Prices are expected to remain low in light of a worldwide travel slowdown as more countries including India impose lockdowns to deter Covid-19. The market will, however, watch for any signs of a thaw in the Saudi-Russian price war, along with more central bank and government stimulus. Among the factors expected to influence trade:
▪ More oil is headed into stockpiles as the war for market share shows no sign of abating. Saudi Arabia said it had not had any contacts with Moscow about output cuts or other solutions to steady prices.
▪ Saudi Arabia still insists it will boost production to a record-high 12.3 million bpd in April 2020, and will export 10 million bpd in May 2020, compared with an estimated 7.3 million bpd this month.
▪ Algeria, the current chair of Opec, is seeking an emergency meeting to discuss the crisis, as reports show more ships are being filled with crude at a record pace, while land storage rapidly diminishes because there is no market for recent output.
▪ The Swiss bank UBS forecasts March oil demand to drop by 5-10 million bpd, or 5-10%, from the same month last year. It sees WTI and Brent prices staying at around $20 a barrel at least through June.
▪ US crude inventory figures for the week to March 20 showed a slight rise, but they don’t yet reflect the impact of the rapidly spreading virus. However, a broader gauge of oil products supplied declined 2.1 million barrels or 10% from a week earlier, while jet fuel demand was down 18% from a year ago.
▪ Economic indicators to watch include euro-zone March consumer prices and Chinese and US manufacturing PMI updates.
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