Oil prices mixed on stimulus vs demand destruction
As global oil demand drops due to Covid-19, Brent is on track for its fifth consecutive weekly fall
London — Oil prices were mixed on Friday as the market weighed the potential benefits of stimulus efforts by policymakers around the world against demand destruction caused by fallout from the rapid spread of the coronavirus.
Brent crude was on track for its fifth consecutive weekly drop. By 9.22am GMT, it was down 40c, or 1.5%, at $25.94 a barrel. US crude was up 11c, or 0.5%, at $22.71.
Both the benchmarks are down nearly two-thirds this year and the slump in economic activity and fuel demand because of the Covid-19crisis has forced huge retrenchment in investment by oil and other energy companies.
“Unlike the financial markets, the oil market is apparently finding it difficult to look beyond the current crisis,” Commerzbank analyst Eugen Weinberg said.
Oil requirements around the world may drop by 20% as 3-billion people are in lockdown, the head of the International Energy Agency (EIA) Fatih Birol said as he called on major producers such as Saudi Arabia to help to stabilise oil markets.
Weinberg said “We have our doubts about whether Saudi Arabia will allow itself to be persuaded so easily to return from the path of revenge that it only recently embarked upon.”
Leaders of the G20 major economies pledged on Thursday to inject more than $5-trillion into the global economy to limit job and income losses from the coronavirus and “do whatever it takes to overcome the pandemic”.
Leaders of the US House of Representatives are determined to pass a $2.2-trillion coronavirus relief bill on Friday, or at the very latest on Saturday, hoping to provide the quickest help possible as deaths mount and the economy reels.
With more than 85,000 infections and 1,300 deaths, the US is fast becoming the next global epicentre of the pandemic. Mainland China reported its first locally transmitted coronavirus case in three days and 54 new imported cases, as Beijing ordered airlines to sharply cut international flights, for fear travellers could re-ignite the coronavirus outbreak.
As global oil demand plummets, Saudi Arabia is struggling to find customers for its extra oil, undermining its bid to seize market share from rivals by expanding production.
Oil cartel Opec and its de facto leader Saudi Arabia failed earlier this month to reach an agreement with other producers, including Russia (Opec+), to curb oil production to support prices. But the head of Russia’s sovereign wealth fund Kirill Dmitriev told Reuters a new Opec+ deal to balance oil markets might be possible if other countries join in.
“It does not seem as though there is anything the Saudis or the broader Opec+ group can do to push the market significantly higher,” said ING analyst Warren Patterson. “The demand destruction we are seeing does mean the level of cuts that would be needed by the group would be just too much to stomach.”
The Algerian oil minister called for an extraordinary meeting of Opec’s economic panel via teleconference to assess current oil market conditions and immediate prospects.