01 Apr Crude Oil Heads Lower; Supply Continues to Grow
By Peter Nurse
Investing.com – Oil markets pushed lower Wednesday, adding to recent hefty losses, as the coronavirus crushes demand amid a price war that has flooded the market with extra supply and shows no signs of ending.
AT 9:00 AM ET (1300 GMT), U.S. crude futures traded 0.9% lower at $20.29 a barrel, while the international benchmark Brent contract fell 4.3% to $25.21, with both contracts dropping around 66% since the start of the year.
There had been hopes that U.S. President Donald Trump would put pressure on Russia and Saudi Arabia to end their price war, but his conversations with the leaders of the two countries have had little impact so far and prices look likely to head lower.
“The Saudis will boost supply this month, as part of their price war with Russia, and the market expects to see more than 2 million bbls/d of additional supply coming from Saudi Arabia alone,” said analysts at ING, in a research note.
Additionally, Russia has the capability to increase output in the region of 200,000-300,000 bbls/d, Iraq could boost output in the region of 200,000 bbls/d too, and that’s not mentioning Libya, where export blockades are still in place, ING noted.
“The scale of the surplus over 2Q20 and the continued weakness in prices does mean that pressure from the U.S. to try to stabilise the market will continue to build over the next quarter. However we still believe that any potential action taken by OPEC+ in the coming months will fall short of bringing the market back to balance,” ING added.
The collapse in prices means global spending on oilfield equipment and services this year will fall 21% from 2019 to $211 billion, the lowest level since 2005, according to a report by consultancy Spears & Associates, as oil and gas producers slash spending.
Still, there has been some upside from the collapse in prices as China has increased U.S. crude purchases, Reuters reported, with some buyers snapping up cargoes at the widest discounts ever as sellers seek to offload excess supplies in Asia.
Cheap U.S. energy supplies will help China lower its import costs, but the deep discounts will add further pressure on U.S. producers to shut in production.
U.S. Mars Sour crude has been sold to Chinese buyers at discounts between $7 and $9 a barrel to September ICE Brent futures for July arrival while the discounts for West Texas Intermediate crude in Midland were between $6 and $7 a barrel, Reuters reported.
Eyes will now turn to the release of the U.S. government’s inventory data at 10:30 AM ET (1430 GMT), after the American Petroleum Institute’s weekly report on U.S. oil supplies on Tuesday showed crude inventories rising by over 10 million barrels last week.
Crude Oil Heads Lower; Supply Continues to Grow
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