Global Covid-19 lockdowns drag oil down
The weakening demand will lead oil refineries to cut processing rates and drive a rise in stock, which in turn will lift pressure on oil prices
London — Oil prices fell on Thursday, ending three sessions of gains, as movement restrictions worldwide to contain the coronavirus destroyed demand and overshadowed expectations that a US $2-trillion emergency stimulus will bolster economic activity.
Brent crude futures fell $1.04, or 3.75%, to $26.35 a barrel by 8.34am GMT. West Texas Intermediate (WTI) crude futures fell 94c, or 3.8%, to $23.55 a barrel. Both contracts are down about 60% in 2020.
“Oil markets received a lift from the US stimulus chatter, but for the most part activity remains rudderless, awash in a sea of oil,” Stephen Innes, market strategist at AxiTrader, said.
The US Senate on Wednesday overwhelmingly backed a $2-trillion bill aimed at helping unemployed workers and industries hurt by the coronavirus epidemic.
But with demand disappearing and output rising, the outlook is bleak.
Goldman Sachs forecast global oil demand, which stood at about 100-million barrels per day (bpd) in 2019, will fall by 10.5 million-bpd in March and 18.7-million bpd in April. For the year, oil consumption is expected to contract about 4.25-million bpd, the Wall Street bank said.
“Global isolation measures are leading to an unprecedented collapse in oil demand,” it said.
The weakening demand will lead oil refineries to cut processing rates and drive a rise in inventories, which in turn will increase pressure on crude prices that Goldman expects will remain near $20 a barrel in the second quarter.
At the same time, the collapse of a supply-cut pact between the Opec and other producers led by Russia, known as Opec, is set to boost oil supply, with Saudi Arabia planning to ship more than 10-million bpd from May.
Oil stocks are already rising with tanks around the world filling fast despite a 50%-100% jump in leasing costs.
Efforts by the US to persuade Saudi Arabia to limit supplies as its shale oil industry struggles with the price collapse were unlikely have much effect on, Dutch bank ING said.
“Even if we do see some restraint from the Saudis, the world is still set to see a significant oil surplus over the second quarter of 2020, given the demand hit we are currently seeing. This suggests that any potential action would likely only stabilise prices, rather than push the market significantly higher.”
US crude inventories rose by 1.6-million barrels last week, the US Energy Information Administration said on Wednesday, marking the ninth straight week of increases.
Products supplied, a proxy for US demand, dropped nearly 10% to 19.4-million bpd, EIA data showed.
With Roslan Khasawneh and Sonali Paul
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