Oil prices slip on rising coronavirus cases, oversupply and demand concerns

 Oil prices fell on Tuesday on worries that a resurgence of coronavirus cases globally is stifling a recovery in fuel demand while growing Libyan output adds to already plentiful supply.

Brent crude futures were trading down 34 cents, or 0.8%, at $42.28 a barrel by 0903 GMT. U.S. West Texas Intermediate (WTI) crude futures fell 15 cents, or 0.4%, to $40.68.

COVID-19 cases topped 40 million on Monday, according to a Reuters tally, with a growing second wave in Europe and North America sparking various degrees of lockdown measures.

A meeting on Monday of a ministerial panel of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+, pledged to support the oil market as concerns grow over soaring coronavirus cases.

For now OPEC+ is sticking with a deal to curb output by 7.7 million barrels per day (bpd) to the end of the year and then increasing production by 2 million bpd in January.

"Monday's JMMC meeting failed to match market hopes of scrapping the planned output rise in January amidst an increasingly precarious demand environment," JBC Energy said.

OPEC watchers, including analysts from U.S. bank J.P. Morgan, have said that a weak demand outlook could prompt OPEC+ to delay the reduction in curbs.

"Demand recovery is uneven ... Today this process has slowed down because of a second coronavirus wave but has not yet fully reversed," Russian Energy Minister Alexander Novak told the JMMC meeting.

OPEC member Libya, which is exempt from the cuts, is ramping up production after armed conflict shut almost all of the country's output in January.

Output from its biggest field, Sharara, resumed on Oct. 11 and is now at about 150,000 bpd, about half its capacity, two industry sources told Reuters.

Another 70,000 bpd oilfield is expected to restart on Oct. 24

Coronavirus impact: Brent crude dives over 7% to lowest since 2003

Oil prices slumped anew on Friday with Brent North Sea crude plumbing a 17-year low owing to massive oversupply as the coronavirus crisis paralyses global demand.

Around 1435 GMT, Brent for May delivery was down 7.33 percent from Thursday, at USD 24.41 a barrel. West Texas Intermediate fell 5.97 percent to USD 21.25.

Oil has tanked in recent weeks on the back of collapsing demand, as COVID-19 slams the brakes on economic activity and the world's appetite for energy. Crude futures spiralled even lower this month after a fierce price war erupted between Riyadh and Moscow.

"The coronavirus pandemic is reducing oil demand," wrote analysts at the Wood Mackenzie research consultancy in a note to clients.

"The OPEC+ production restraint agreement fell apart on 6 March and Saudi Arabia is rapidly increasing supply.

"The result: Brent crude has plunged," they added.

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Until recently, the Organization of the Petroleum Exporting Countries (OPEC) and Russia had cooperated closely since 2016 to curb production, support prices and protect their precious revenues.

That all changed this month when Saudi Arabia launched a price war with Moscow, after OPEC and non-member Russia failed to clinch an output-cutting deal to curb the market impact of the deadly COVID-19 outbreak.

The perfect storm has sent oil prices collapsing to their lowest levels in almost two decades, while also stretching global crude storage capacity.

"With Saudi Arabia attempting to flood the oil market by ramping up production to counter Russia, oil prices have halved this month ... prompting countries to stockpile under the low prices," said Sun Global Investments head Mihir Kapadia.

"Oil stockpiles around the world climbed up as major refineries in core markets such as China were shutdown due to the pandemic.

"According to industry reports oil storage levels globally have already reached 75 percent of capacity, and continued stockpiling under closed demand would crash the prices to USD 10 in the coming months unless industrial activity restarts.

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With 3 billion people in lockdown, global oil requirements could drop by 20%, International Energy Agency head Fatih Birol said as he called on major producers such as Saudi Arabia to help to stabilise oil markets.

The calls may not be enough to bring the market back into balance.

"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," said Commerzbank analyst Eugen Weinberg, referring to the price war being waged between Russia and Saudi Arabia.

The Group of 20 major economies on Thursday pledged 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 by Saturday at the latest, hoping to provide quick help as deaths mount and the economy reels.

Mainland China reported its first locally transmitted coronavirus case in three days and 54 new imported cases as Beijing ordered airlines to implement sharp reductions in international flights, for fear travellers could reignite the outbreak.

As global oil demand plummets, Saudi Arabia is struggling to find customers for its extra oil, undermining its bid to seize market share by expanding production.

"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.

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"The demand destruction we are seeing does mean the level of (production) cuts that would be needed by the group would be just too much to stomach," he said.

Russian Deputy Energy Minister Pavel Sorokin said the coronavirus outbreak has dented global oil demand by 15 million to 20 million barrels per day (bpd).

Oil and gas research group JBC Energy said it had "drastically" reduced its oil demand forecast for 2020, expecting a decline of more than 7.4 million bpd on average.

India to top up strategic oil reserve with Rs 5,000 cr buy as prices drop

India has decided to take advantage of the low oil prices in major producing centres in Saudi Arabia and the UAE to top up its strategic oil reserves created to meet the emergency in times of exigencies, two government officials privy to the information said.

It has decided to buy oil worth Rs 5,000 crore (about $670 million) at current price of around $30 a barrel for deliveries starting in April-May to fill up three petroleum reserve caverns with a capacity of 5.33 million tonnes (MT) of oil created by the India Strategic Petroleum Reserves Ltd (ISPRL).

Global crude oil fell about 40 per cent in March (to about $25 a barrel now) so far after talks of production cut between the OPEC and Russia failed.

Major Gulf oil producers have now decided to increase oil production in complete disregard to market confirms where coronavirus outbreak had further dented demand resulting in oil price crash.

"The plan is to first get Aramco and Adnoc to fill strategic reserve capacity that they can also use for commercial gains later. If companies are reluctant at this juncture, the ISPRL will buy oil on its own once government provide it with requisite budget. Alternatively, PSU oil marketing such as IOC, BPCL may be asked to contract oil for storage in the reserves," said one of the government officials.

"Filling reserves at this juncture with low oil prices will help our initiative to build larger strategic oil capacities," the official added.

It is estimated that the government would save between $500-600 million if just over half of the existing strategic reserve capacity is filled with Gulf oil. The benefit will not only accrue from lower global oil prices, but Gulf oil producers have indicated that they would also offer good discount on oil.

Around half of the 5.33 MT of India's strategic petroleum reserve is full now. Once full capacity is contracted and filled, the country would be in a position to meet 9.5 days of its oil needs through the strategic reserve.

India currently has operational 5.33 million tones underground strategic reserve facilities at Vishakhapatnam, Mangalore and Padur. Another 6.5 mt facility is coming up at Padur and Chandikhole.

Work on two more facilities in Bikaner and Rajkot would be initiated soon. When completed, these would hold enough oil to meet over a month of domestic requirements.

In addition, the Oil Ministry has told ISPRL to identify new sites so that storage for 90-100 days stock of oil ready in the country at all times.

A large strategic oil capacity could benefit a lot from lower oil prices as it presented huge savings for the government and companies that also could be commercially exploited for larger gains.

The present budget of Rs 5,000 crore would be sufficient to fill entire 5.33 MT tonnes of reserves that is already half filled. This would not have been possible earlier, when oil prices were high.

The ISPRL has signed a Memorandum of Understanding (MoU) with the ADNOC for the lease of half of its 2.5 MT at the Padur facility. Last year, it also signed an MoU with Saudi Aramco for the lease of a quarter of Padur SPR.

The ISPRL has already leased half of the 1.5 million tonnes capacity in Mang alore storage to ADNOC.

It has also filled its 1.03 million tonnes Vizag facility with Basra oil from another OPEC producer Iraq.

 

Oil rises over 6% after price war sparks biggest daily rout since 1991

Oil prices jumped more than 6 per cent on Tuesday, clawing back some ground on hopes that a price war by top producers Saudi Arabia and Russia that sparked the biggest daily rout since the 1991 Gulf War will not be sustained.

US shale producers also rushed to deepen spending cuts and could reduce future production after OPEC's decision to pump full bore into a global market hit by shrinking demand due to the coronavirus outbreak.

Brent crude futures rose $2.31, or 6.7 per cent, to $36.67 a barrel by 0115 GMT, while US West Texas Intermediate (WTI) crudegained $1.79, or 5.8 per cent, to $32.92 a barrel following declines of nearly 25 percent on Monday.

Both benchmarks dropped to their lowest since February 2016 in the previous session and recorded their biggest one-day percentage declines since Jan. 17, 1991, when oil prices fell at the outset of the US Gulf War.

Trading volumes in the front-month for both contracts hit record highs in the previous session, after a three-year pact between Saudi Arabia and Russia and other major oil producers to limit supply fell apart on Friday.

"When you look at the leverage the industry is in, at prices of around $30, it's not profitable," said Jonathan Barratt, chief investment officer Probis Group.

"Saudis and other Middle Eastern producers have their budgetary constraints, Russia is starved for cash and the breakeven for .. shale has to be around $50 a barrel. So the dynamics of all those put together will mean they will come to an agreement somewhere."

But analysts do not expect oil prices to quickly regain the nearly 25 per cent slump from Friday's close as the coronavirus outbreak cuts demand.

"Oil prices rarely stay below the marginal cash cost of supply. But with the anticipated inventory build in (the first half) we struggle to find conviction in a snap back for oil," analysts from Bernstein Energy said in a note.

Energy stock prices have also fallen sharply, and shale producers began cutting spending in anticipation of lower revenues. Exxon shares lost more than 12 per cent, the largest one-day percentage loss since Oct. 15, 2008, the height of the financial crisis. Chevron's shares fell more than 15 per cent, the biggest loss since the October 1987 "Black Monday" market crash.

Saudi Arabia plans to boost its crude output above 10 million barrels per day (bpd) in April from 9.7 million bpd in recent months, two sources told Reuters on Sunday. The kingdom slashed its export prices at the weekend to encourage refiners to buy more.

Russia, one of the world's top producers alongside Saudi Arabia and the United States, also said it could lift output and that it could cope with low oil prices for six to 10 years.

One the demand side, the International Energy Agency said oil demand was set to contract in 2020 for the first time since 2009. The agency cut its annual forecast and said that demand would contract by 90,000 bpd in 2020 from 2019.

 

US blames 'state actors' for shocking oil markets, pleads for calm

The Trump administration on Monday accused "state actors" of touching off an historic slump in global oil prices, and urged Russia's ambassador to the United States to consider the importance of calming the markets.

Oil prices suffered their biggest daily rout since the 1991 Gulf War on Monday as top producers Russia and Saudi Arabia launched a price war in the face of weak demand prompted by the spread of the coronavirus.

"These attempts by state actors to manipulate and shock oil markets reinforce the importance of the role of the United States as a reliable energy supplier to partners and allies around the world," U.S. Energy Department spokeswoman Shaylyn Hynes said in a statement.

The department did not name any country, but said it was watching the fallout from last week's meeting in which a three-year pact between Russia and Saudi Arabia, the top producer in the Organization of the Petroleum Exporting Countries, collapsed after Russia declined to follow OPEC's lead in cutting output.

U.S. Treasury Secretary Steven Mnuchin "emphasized the importance of orderly energy markets" in a previously scheduled meeting on Monday with Russian Ambassador Anatoly Antonov, the Treasury said in a statement.

Mnuchin's pleas could face an obstacle after the Trump administration last month slapped sanctions on a subsidiary of Russian state oil major Rosneft that it says provides a lifeline to Venezuela's President Nicolas Maduro.

The United States and most other Western countries consider Maduro's 2018 election a sham.

But Russia, which has boosted operations in Venezuela as the country faces an economic crisis, believes it is unfair to penalize Russian companies without also placing sanctions on U.S. companies that have operations in the South American country, including Chevron Corp.

PRODUCERS

The market rout poses a threat to the bustling U.S. drilling industry, an important segment of the U.S. economy that has made the country into the world's largest producer of oil and gas and reversed its historic role as a proponent of low energy prices.

The plunge could push many U.S. producers, some of whom have already been hit by near-record low natural gas prices, into bankruptcy.

The oil and gas industry downplayed the effect of the oil price drop on U.S. producers, however.

Mike Sommers, the head of the American Petroleum Institute industry group, said efficiency advances brought about during the U.S. shale revolution are protecting American drillers from gyrations in global oil markets.

"U.S. producers today are more efficient and more productive than they have ever been and their investments are for the long term," Sommers told reporters in a teleconference.

Sommers acknowledged that producers cannot be entirely shielded from global market forces, however.

Energy Secretary Dan Brouillette on Monday directed his department to determine whether a scheduled sale of 12 million barrels of oil from the U.S. Strategic Petroleum Reserve should take place this month, the DOE said.

The department had announced the sale on Feb. 28 in compliance with a 2015 law that ordered occasional sales to help pay for government programs.

President Donald Trump, who is seeking reelection in November, tried to put a silver lining on the oil price drop.

"Good for the consumer, gasoline prices coming down!" he wrote.

Oil prices fall almost 2% on uncertainty over US-China trade talks

Oil prices fell more than 1 per cent on Monday, erasing much of last week's gains and tumbling alongside US stocks on uncertainty over a trade deal between the United States and China.

Brent crude futures settled at $62.44 a barrel, down 86 cents, or 1.4 per cent. West Texas Intermediate (WTI) crude ended 67 cents, or 1.2 per cent, lower at $57.05 a barrel. Both benchmarks posted their second straight weekly gain last week, with Brent rising 1.3 per cent and WTI up 0.8 per cent.

Wall Street's three main stock indexes also fell from last week's record highs following a report that stoked concerns a US-China trade deal might not get through, which pushed oil prices lower, analysts said.

"Crude has become highly reactive to whichever way the wind is blowing in the (US-China) trade talks. When it falters, prices get punished," said John Kilduff, a partner at Again Capital LLC in New York. "This headwind of slack demand growth keeps holding us back."

The 16-month trade war between the world's two biggest economies has slowed global growth, prompting analysts to lower forecasts for oil demand growth and raising concerns that a supply glut could develop in 2020.

China and the United States had "constructive talks" on trade in a high-level call on Saturday, state media Xinhua reported on Sunday, but it gave few other details.

On Monday, CNBC quoted a Chinese government source saying the mood in Beijing about a trade deal was pessimistic due to US President Donald Trump's reluctance to roll back on tariffs.

"The souring trade situation has put a halt to the rally," said Robert Yawger, director of energy futures at Mizuho in New York, adding crude prices had risen earlier in the session but faded when New York markets opened.

Expectations of lower seasonal demand for gasoline in the United States also weighed on oil prices, said Andy Lipow, president of Lipow Oil Associates in Houston.

Concerns about plentiful crude supplies in 2020 weighed on the market. US crude stockpiles were seen rising 1.1 million barrels last week, which would be the fourth straight weekly build, a preliminary Reuters poll showed.

The Organization of the Petroleum Exporting Countries (OPEC) said last week it expected demand for its oil to fall in 2020, supporting a view that there is a case for the group and other producers like Russia - collectively known as OPEC+ - to maintain limits on production.

OPEC+ is due to discuss output policy at a meeting on Dec. 5-6 in Vienna. Their existing production deal runs until March.

Oil prices near 2019 highs amid supply cuts by Opec, US sanctions

Oil prices on Friday hovered close to 2019 peaks reached the previous day, propped up by supply cuts led by producer club OPEC and by US sanctions against Iran and Venezuela.

Brent crude oil futures were at $67.82 per barrel at 0122 GMT, down 4 cents from their last close but within a dollar of the $68.69 per barrel 2019-high marked the day before.

US West Texas Intermediate (WTI) futures were at $60 per barrel, virtually unchanged from their last settlement and not far off their 2019 peak of $60.39 touched on Thursday.

Prices have been propped up by supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and non-affiliated allies such as Russia, often referred to as 'OPEC+'.

Despite a more than a quarter increase in crude prices this year, Canadian investment bank RBC Capital Markets said oil was "still below the fiscal breakeven level in a number of OPEC countries", meaning that many producers have an interest in further propping up the market.

"With the driver of the OPEC bus, Saudi Arabia, showing no signs of wavering in the face of renewed pressure from Washington, we believe that OPEC is likely to extend the deal for the duration of 2019 when they next assemble in Vienna in June," RBC said.

RBC said Russia was only a reluctant partner in the supply cuts, but would "ultimately opt to preserve the arrangement and retain a leadership role of a 21-nation group that accounts for around 45 per cent of global oil output".

Beyond OPEC and Russia's supply policy, oil prices have also been boosted by US sanctions on OPEC-members Iran and Venezuela.

Iranian crude oil shipments have averaged only just over 1 million bpd in March, down from 1.3 million bpd in February and a 2018 peak of at least 2.5 million bpd in April, before the US sanctions were announced.

Venezuelan crude oil production has also dwindled amid US sanctions and an internal political and economic crisis, plunging from a high of more than 3 million bpd at the start of the century to not much more than 1 million bpd currently.

Putting a break on further price increases has been a US crude oil production jump of more than 2 million bpd since early 2018 to a record 12.1 million bpd, making the United States the world's biggest producer ahead of Russia and Saudi Arabia.

Soaring US output has resulted in increasing exports, which have doubled over the past year to more than 3 million bpd.

The International Energy Agency (IEA) estimated that the United States would become a net crude oil exporter by 2021.