Oil Rally Falters on Demand Dread
(Bloomberg) -- Oil’s recovery rally went into reverse as mounting evidence of the demand devastation being wrought by the coronavirus outweighed progress on a U.S. economic rescue package.
Futures in New York fell around 3% to below $24 a barrel after rallying 9% over the previous three days. The U.S. Senate approved a $2 trillion stimulus plan after days of intense negotiations, putting pressure on the House to pass the bill quickly and send it to President Donald Trump for his signature.
As global virus cases approached half a million and India imposed the world’s biggest lockdown, Goldman Sachs Group Inc. warned that crude demand would fall by almost 19 million barrels a day next month. The collapse would lead to an “unprecedented shock” for the global refining system, with product storage saturation set to occur over the next several weeks, the bank said in a note.
While the White House is pressing Saudi Arabia to dial back its plan to flood the oil market, any potential agreement with the U.S. and Russia will be too little and too late, according to Goldman. Indian refineries are preparing to slash the amount of crude they process to as little as half their normal rates, according to estimates from one of the country’s biggest Middle Eastern suppliers.
“We’re going to see WTI at the $20 level or even $15-$17 because everyone is so focused on the impact of the virus and it’s at a critical level for the U.S.,” said Edward Moya, senior market analyst at OANDA. “We’re going to continue to see demand coming down and we’re still going to have overall caution on the return of travel and trade.”
West Texas Intermediate for May delivery dropped 3.2% to $23.71 a barrel on the New York Mercantile Exchange as of 7:25 a.m. in London after closing up 2% on Wednesday. It’s plunged 47% so far in March.
Brent for May settlement declined 2.2% to $26.80 a barrel on the ICE Futures Europe exchange after finishing 0.9% higher on Wednesday. The global benchmark crude traded at a $3.09 premium to WTI.
In the U.S., crude production remained near record highs last week, according to data from the Energy Information Administration. American oil inventories climbed for a ninth week to 455 million barrels, the longest rising streak since November 2018. Shale producers will probably try and fight to survive and generate cash, so supply may not ease that much, OANDA’s Moya said.
Meanwhile, funding for President Trump’s plan to fill up the nation’s emergency oil reserve to help struggling drillers cope with the price crash failed to make it into the latest stimulus legislation but could return in other forms.
--With assistance from James Thornhill.
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