Oil closes under US$20 a barrel for a second day

Apr 17, 2020 News

(Bloomberg) — Oil closed under US$20 a barrel for a second day, yesterday, as projections that demand will fall to a 30-year low outweighed an agreement by the world’s biggest producers to curb supply. Futures in New York ended the day unchanged from the 18-year low set Wednesday.
OPEC said it expects demand for its crude to fall to the lowest in three decades as the coronavirus outbreak freezes the global economy, underscoring the urgency of the group’s promised production cuts. OPEC and its allies have agreed to curb output by 10% next month. But even with full compliance, the group would still be pumping more than the market requires in the second quarter.
The cuts “certainly aren’t going to be near enough to balance the market,” said Bart Melek, head of commodity strategy at TD Securities. “There is a good chance, that over the short run, we might even be lower here.”
Inventories from America to Europe and Singapore have all ballooned this week, sending some localized crude prices below $10 a barrel. The glut is looking so severe that the Trump administration is considering paying American companies to leave crude in the ground.
The stock builds come as the International Energy Agency said 2020 may be the worst year in the history of the oil market as lockdowns globally lead to the biggest hit to demand ever.
“This OPEC deal is great and good, but it doesn’t help us over the next thirty days,” Rebecca Babin, senior equity trader at CIBC Private Wealth Management, said by phone. “Even with the OPEC agreement, the size and timing of it is not enough to alleviate potential storage issues in the near term.”
All the while physical oil prices, particularly in Europe, are trading far below those of futures. Key North Sea crude swaps are trading at the biggest discount to the headline Brent futures price in almost a decade. The critically important Dated Brent benchmark, which shapes the price of millions of barrels, was assessed by S&P Global Platts at $18.08 on Wednesday, with cargoes across Europe trading at a discount to that value.
As real crude prices and futures markets dislocate, some investors are eyeing a bottom in WTI, with almost $700 million flowing into a key ETF so far this week.
In response to the market downturn, U.S producer ConocoPhillips said it will cut North American output by more than one-fourth and halt all fracking in the continent.
Prices:
• West Texas Intermediate futures settled unchanged at $19.87 a barrel in New York, the same as yesterday’s lowest close since 2002
• Brent for June delivery rose 13 cents to $27.82
“What will be the most important determinant for oil markets in the short term is how quickly governments relax social distancing measures,” boosting consumption, said Rystad Energy AS’s head of analysis Bjornar Tonhaugen.

Other oil-market news:
• At least five Chinese refiners are seeking full contractual crude volumes for May from Saudi Aramco, according to traders who asked not to be identified.
• The Kremlin may have succeeded in ending its oil war with Saudi Arabia, yet the pain of crude’s crash is only just starting to hit Russia’s budget.
• Royal Dutch Shell Plc plans to eliminate all net emissions from its own operations and the bulk of greenhouse gases from fuel it sells to customers by 2050.
• In Fargo, North Dakota, cheap fuel has never been so unwelcome.
• Cargoes of gasoline and jet fuel are starting to sit for days at a time on tankers in the North Sea as the coronavirus destroys demand for the two petroleum products, and available space to store supplies on land dwindles fast.

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