Oil slumps as U.S. crude stocks build amid virus resurgence fears

CNBC

Reuters
KEY POINTS
  • Brent crude futures were down 89 cents, or 2.2%, at $40.07 a barrel as of 0348 GMT.
  • U.S. West Texas Intermediate (WTI) futures fell $1.13, or 2.9%, to $37.25 a barrel.
An offshore oil platform is seen with a tanker in the distance on April 20, 2020 in Huntington Beach, California.
An offshore oil platform is seen with a tanker in the distance on April 20, 2020 in Huntington Beach, California.
Michael Heiman | Getty Images

Oil prices fell on Wednesday as data showed an increase in U.S. crude and fuel inventories, raising the prospect of oversupply as a potential second wave of the coronavirus pandemic threatened to halt any recovery of demand.

Brent crude futures were down 89 cents, or 2.2%, at $40.07 a barrel as of 0348 GMT, and U.S. West Texas Intermediate (WTI) futures fell $1.13, or 2.9%, to $37.25 a barrel.

Both benchmarks rose more than 3% on Tuesday, after the International Energy Agency (IEA) raised its 2020 oil demand forecast to 91.7 million barrels per day (bpd) and U.S. retail sales posted a record jump in May.

The rise in U.S. crude and fuel inventories, however, stoked concerns about a surplus and pressured oil prices, as the number of coronavirus infections surpassed 8 million globally and several U.S. states saw their case numbers spike.

“API data showed a build in crude inventories, and rising new coronavirus cases in the United States and China have dampened expectations of improving fuel demand in the world’s top two oil consumers,” said Kim Kwang-rae, commodity analyst at Samsung Futures in Seoul.

U.S. crude oil inventories rose by 3.9 million barrels in the week to June 12 to 543.2 million barrels, according to data from industry group the American Petroleum Institute, countering expectations for a fall of 152,000 barrels.

Gasoline stocks rose by 4.3 million barrels and distillate fuels, which include diesel and heating oil, rose 919,000 barrels.

Official data from the U.S. Department of Energy’s Energy Information Administration is due later on Wednesday.

An OPEC-led panel will meet on Thursday to further discuss ways to strengthen and review compliance with producers’ commitment to curb oil output.

Iraq reduced its oil exports by 8%, or 300,000 bpd, so far in June, indicating OPEC’s second-largest producer is stepping up efforts to adhere to its pledged cut.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, agreed to cut output by 9.7 million bpd — about 10% of pre-pandemic demand — to the end of July.

Oil edges higher after hitting 18-year lows but demand outlook weighs

CNBC

Reuters
KEY POINTS
  • Brent crude was up 36 cents, or 1.3%, at $28.05 a barrel by 0502 GMT.
  • U.S. West Texas Intermediate (WTI) was up 10 cents, or 0.5%, at $19.97.
GP: Russian oil field 200401 ASIA
Oil pumping jacks, also known as “nodding donkeys,” operate in an oilfield near Almetyevsk, Tatarstan, Russia, on Wednesday, March 11, 2020.
Andrey Rudakov | Bloomberg | Getty Images

Oil edged higher on Thursday following sharp losses in the previous session on hopes that a big build-up in U.S. inventories may mean producers have little option but to deepen output cuts as the coronavirus pandemic ravages demand.

With official data showing U.S. inventories surging the most on record, WTI fell on Wednesday to its lowest since February 2002, with Brent slumping more than 6%.

Brent crude was up 36 cents, or 1.3%, at $28.05 a barrel by 0502 GMT. U.S. West Texas Intermediate (WTI) was up 10 cents, or 0.5%, at $19.97.

Concerns about crumbling demand kept a lid on gains with both contracts having traded over 2.5% higher earlier in the session.

Energy Information Administration data also showed large U.S. refined fuels stock builds despite refiners operating at 69% of capacity nationwide, the lowest since September 2008.

“The massive storage build, as counterintuitive as it sounds, did provide some price support as the build foreshadows that more wellhead closures are just around the corner, which effectively trims U.S. supply,” said Stephen Innes, chief global markets strategist at AxiCorp.

The figures followed a report from the International Energy Agency (IEA) that forecast oil demand would fall by 29 million barrels per day (bpd) in April, to the lowest in 25 years, and just below 30% of global demand before the coronavirus outbreak.

That number is well above production cuts in the pipeline. The Organization of the Petroleum Exporting Countries (OPEC) and allied producers including Russia, a grouping known OPEC+, have agreed to reduce output by 9.7 million bpd, while hoped-for cuts of another 10 million bpd from other countries including the United States could lower production by 20 million bpd.

Last week, the EIA said U.S. production is expected to slump by 470,000 bpd.

“Given the scale of demand destruction this quarter, OPEC+ cuts will fall short of bringing the market to balance anytime soon, and this is reflected in the price weakness seen since the OPEC+ deal,” said ING bank in a note on Thursday.

Some countries have also committed to increasing purchases of oil for their strategic stockpiles, but there are physical limits to how much oil can be bought.

The “use of strategic petroleum reserves in China, India, South Korea, and the U.S. could add about 200 million barrels of temporary storage, but this only buys a few months of wiggle room,” said Innes.

Further cuts to production will be required “to avoid another collapse in oil prices,” he said.

The losers — and even bigger losers — of an oil price war between Saudi Arabia and Russia

KEY POINTS
  • Most energy analysts have dismissed the idea that Saudi Arabia and Russia’s price war has been specifically designed to target U.S. shale, but the industry is expected to bear the brunt of the pain.
  • Some believe the worst hit from a sharp drop in oil prices will be long-time allies of de facto OPEC leader, Saudi Arabia.
  • “Even at $30, something is going to happen … We are not going to stay here. We can’t,” Chris Weafer, a senior partner at Macro-Advisory, told CNBC.
GP: SAUDI-RUSSIA-DIPLOMACY 200309 EU
Russian Energy Minister Alexander Novak and Saudi Energy Minister Abdulaziz Bin Salman sign documents during a ceremony following a meeting of Russian President Vladimir Putin with Saudi Arabia’s King Salman in Riyadh, Saudi Arabia, on October 14, 2019.
ALEXEY NIKOLSKY | SPUTNIK | AFP via Getty Images

An intensifying oil price war between Saudi Arabia and Russia has created “very painful” market conditions for the world’s largest crude producers, analysts have told CNBC, with many braced for sliding revenues over the coming months.

International benchmark Brent crude traded at $34.23 Thursday morning, down over 4.4%, while U.S. West Texas Intermediate (WTI) stood at $31.64, around 4% lower. Oil prices have almost halved since the start of the year.

The downturn for crude futures comes shortly after talks between OPEC kingpin Saudi Arabia and non-OPEC leader Russia broke down.

Markets had been hoping for an agreement between Riyadh and Moscow, as well as other OPEC and non-OPEC producers, in order to deepen oil output cuts and prop up prices.

The group’s unexpected failure to reach a consensus on production policy led oil prices to crash on Monday.

President Donald Trump’s surprise announcement Wednesday to ban travel from continental Europe following the WHO’s declaration that the coronavirus can now be described as a pandemic also acted as a catalyst for further oil price losses Thursday morning.

What does a price war mean for US shale?

Most energy analysts have dismissed the idea that Saudi Arabia and Russia’s price war has been specifically designed to target U.S. shale, but the industry is expected to bear the brunt of the pain.

Securing America’s Future Energy (SAFE), a think tank that advocates for reducing U.S. dependence on oil, believes the American oil industry is the loser from the current price war.

“Saudi Arabia claims to be the swing producer to stabilize the market, but mostly they just cause swings that hurt the free market and the ability to compete,” Robbie Diamond, president and CEO of SAFE, said via email shortly after OPEC and non-OPEC allies failed to reach an agreement.

“Our industry and the U.S. economy has no choice but to watch once again as Saudi Arabia tanks the price of oil to suit its domestic priorities,” he added.

Premium: A Shale-Oil Boomtown As Oil Bust Proves To Be Good
A pumpjack operates above an oil well at night in the Bakken Formation on the outskirts of Williston, North Dakota, U.S., on Thursday, March 8, 2018.
Bloomberg | Bloomberg | Getty Images

Trump initially welcomed the declaration of a price war between Saudi Arabia and Russia, hailing lower oil prices as good news for U.S. consumers.

Saudi Arabia has since signaled its intent to flood the market with crude, unveiling plans Wednesday for state-owned Saudi Aramco to ramp up production to 13 million barrels per day (bpd).

It is thought such a move could prompt a wave of bankruptcies and investment cuts in the U.S. which, in turn, would have a noticeable impact on shale production.

IEA says OPEC allies are in a ‘very, very difficult situation’

Some believe the worst hit from a sharp drop in oil prices will be long-time allies of de facto OPEC leader, Saudi Arabia.

“My main worry today is not on shale,” Fatih Birol, executive director of the International Agency (IEA), told CNBC’s Steve Sedgwick earlier this week.

“It is mainly on some of the major oil-producing countries who have not — despite the calls from the IEA many, many times — diversified their economies.”

Birol suggested countries like Iraq, Algeria and Nigeria — all OPEC producers — were in a “very, very difficult situation” and would require support from the rest of the world.

“They are facing major fiscal strains. Many of them will have difficulties to pay the salaries for the public sector, spending for health, for education, which in turn may provide social pressures in those countries.

Iraq, OPEC’s second-largest producer, is thought to be particularly exposed to an all-out price war because it has one of the least diversified economies of the producer group — despite relatively low production costs.

Iraq’s oil ministry said Tuesday that it will keep in touch with other OPEC and non-OPEC members in an effort to prevent an oil price collapse, Reuters reported.

What about the instigators of the price war?

Shortly after talks broke down with Saudi Arabia late last week, Russia claimed it could withstand lower oil prices for as long as a decade.

Yet, while many believe Moscow is in much stronger financial position to cope with a protracted period of lower oil prices than in previous years, it is not thought to be in the best interests of Russia or Saudi Arabia.

“If you assume that the price difference between agreeing and rejecting last week’s recommendation is $25 (a barrel) then Russia stands to lose a considerable amount of money by not endorsing the proposal,” Tamas Varga, senior analyst at PVM Oil Associates, said in a research note.

“There will come a point when the negative consequences of Russia’s decision will become unbearable for the instigator,” he added.

On Tuesday, Russian Energy Minister Alexander Novak appeared to keep the door open for Moscow and Riyadh to return the negotiating table in order to stabilize markets.

Chris Weafer, a senior partner at Macro-Advisory, told CNBC’s “Squawk Box Europe” on Tuesday that a reaction from the world’s second and third-largest oil producers would be inevitable.

“Even at $30, something is going to happen. The Saudis are going to have to do something because they need a higher price. The U.S. shale industry cannot afford that low price.”

“We are not going to stay here. We can’t,” Weafer said.

Oil rises for 2nd day amid hopes for output cut by US producers

CNBC

Reuters
KEY POINTS
  • Brent crude futures rose $1.44, or 3.9%, to $38.66 a barrel by 0226 GMT, while U.S. West Texas Intermediate (WTI) crude gained $1.12, or 3.3%, to $35.48 a barrel, following a jump of over 8% the previous day.
GP: Oil field 200227 Asia
A derek pumps in an oil field in Kuwait near the Saudi Arabian border.
Joe Raedle | Getty Images

Oil prices climbed for a second day on Wednesday, lifted by hopes that U.S. producers will cut output, but gains were limited compared with Monday’s crash after Saudi Arabia and Russia triggered a price war.

Brent crude futures rose $1.44, or 3.9%, to $38.66 a barrel by 0226 GMT, while U.S. West Texas Intermediate (WTI) crude gained $1.12, or 3.3%, to $35.48 a barrel, following a jump of over 8% the previous day.

“Expectations that U.S. shale oil producers will need to trim output helped improve the market sentiment,” said Satoru Yoshida, a commodity analyst with Rakuten Securities.

Occidental Petroleum on Tuesday joined a growing list of hard-pressed North American oil producers slashing spending and drilling after crude prices slumped to their lowest levels in more than three years.

Oil and equity markets had staged solid rebounds on Tuesday after the previous day’s pummeling, supported by signs of co-ordinated action by the world’s biggest economies to cushion the economic impact of the coronavirus epidemic.

But growing skepticism about Washington’s stimulus package to fight the coronavirus outbreak knocked the steam out of an earlier rally in Asian shares on Wednesday.

“The rebound in crude oil is not expected to last long, with Saudi and Russia boasting about how much they can boost output by as the battle for market share begins,” ANZ said in a note.

Saudi Arabia said on Tuesday it would boost its oil supplies to a record high in April, raising the stakes in a standoff with Russia and effectively rebuffing a suggestion from Moscow for new talks on production levels.

The clash of the two oil titans sparked a 25% slump in crude prices on Monday.

Russian oil minister Alexander Novak said on Tuesday he did not rule out joint measures with OPEC to stabilize the market, adding that the next OPEC+ meeting was planned for May-June. But Saudi Arabia’s energy minister told Reuters he did not see a need for the meeting if there was no agreement on measures to deal with the impact of the coronavirus on oil demand and prices.

“If the slumping oil prices force U.S. shale oil producers to cut production by June, there is chance that OPEC+ would go back to an agreement to reduce output,” Rakuten’s Yoshida said.

On the downside, U.S. crude oil inventories rose in the most recent week, while gasoline and distillate stocks dropped, data from industry group the American Petroleum Institute showed on Tuesday.

Oil slips amid demand concern, fears over OPEC+ deal for deeper output cuts

CNBC

Reuters
KEY POINTS
  • Brent crude fell 48 cents, or 0.96%, to $49.51 per barrel by 0337 GMT.
  • U.S. West Texas Intermediate (WTI) was down 38 cents, or 0.83%, at $45.52 per barrel.
GP: Oil production as sun sets
Oil production in Azerbaijan
Vostok

Oil slid nearly 1% on Friday as worries about global oil demand and economic growth slowdown caused by the coronavirus outbreak were heightened by concern over non-OPEC crude producers not yet having agreed to cut output further to support prices.

Brent crude fell 48 cents, or 0.96%, to $49.51 per barrel by 0337 GMT, while U.S. West Texas Intermediate (WTI) was down 38 cents, or 0.83%, at $45.52 per barrel.

The Organization of the Petroleum Exporting Countries (OPEC) on Thursday pushed for crude output by OPEC and associated producers — a group known as OPEC+ — to be cut by an extra 1.5 million barrels per day (bpd) in total until the end of 2020. The call came ahead of an OPEC+ meeting scheduled for Friday in Vienna.

Non-OPEC states were expected to contribute 500,000 bpd to the overall extra cut, OPEC ministers said. But Russia and Kazakhstan, both members of OPEC+, said they had not yet agreed to the deeper cut, raising the risk of a collapse in cooperation that has propped up crude prices since 2016.

Some analysts expected Moscow to ultimately endorse the agreement.

“If it says no, the entire union could collapse — and with it any new bilateral trade and investment deals in the pipeline as well as the strategic influence Moscow has secured by participating in the production agreement,” RBC Capital Markets said in a research note.

“There will be a flurry of high level calls between Moscow, Riyadh and Abu Dhabi to get the deal done.”

Even with the deep cut, Goldman Sachs said the OPEC+ deal will not be able to prevent a global oil market surplus in the second quarter, or sequentially lower prices in the coming weeks. The bank maintained its Brent price forecast at $45 a barrel in April.

“Ultimately a rebound in demand, not supply cuts, will be the necessary catalyst for a sustainable rebound in prices,” the bank said.

Meanwhile ANZ said global oil consumption could fall by 1.6 million bpd in the first half of 2020 and contract by around 300,000 bpd for the full year.

“Growth may return in H2 (second half of 2020), but is unlikely to be enough to offset the losses,” the bank said.