Oil Slumps Again as Collapsing Demand Counters Stimulus Efforts
March 25, 2020 EnergyNow Media
By Alex Longley and Annmarie Hordern
(Bloomberg) Oil turned lower on an unprecedented hit to consumption, even as policy makers committed trillions of dollars to offset the harm from the global pandemic.Futures in London erased earlier gains to trade down 3.3%. The boss of Vitol Group said demand is down about 15 million to 20 million barrels a day and will shrink further with India’s decision to go into lockdown. Prices had earlier rallied as the White House struck a deal with Senate Democrats and Republicans to provide $2 trillion of spending and tax breaks.The specter of collapsing demand and a rapidly expanding oil surplus have made recent price recoveries short-lived. Brent crude’s six-month timespread has sunk into the deepest contango in more than a decade, signaling oversupply, and gauges of the physical market are also pointing to weakness, with traders expecting the glut to worsen.
As large parts of the global economy shuts down to stop the spread of the coronavirus, neither Saudi Arabia nor Russia are showing any sign of backing down on threats to pump more oil to gain market share. Trading houses are predicting massive surpluses.
“There’s a lot of oil in the market and there’s a lot of stocks we’re going to have to build because it’s not going to get consumed,” Vitol Chief Executive Officer Russell Hardy said in a Bloomberg Television interview on Wednesday. “Demand today we think is down significantly, 15 to 20 million barrels a day at its peak over the next few weeks.”
Brent for May fell 89 cents to $26.12 a barrel as of 8:42 a.m. in New York.
West Texas Intermediate dropped 35 cents to $23.66 a barrel, after rising as much as 5.1% earlier.
In the U.S., two of the biggest oilfield-service providers this week warned of a rapid rollback of shale output amid sweeping cost cuts, potentially reducing supply in the face of evaporating demand.
Chevron Corp. said it would halve spending in the Permian Basin, translating to an output reduction of 125,000 barrels of oil equivalent a day from a previous forecast. Suncor Energy Inc., one of Canada’s biggest oil-sands operators, will close one of two production units at its giant Fort Hills mine.
For now, the value of physical oil supplies is even lower than headline prices. Crudes from Africa to the Middle East and Latin America are trading at sharp discounts to Brent, their lowest levels in years, a sign of the market’s deepening glut.
Other oil-market news
As the U.S. finds itself in the unfamiliar position of lobbying for higher oil prices, China’s enjoying what amounts to a major rebate from crude’s crash just as it tries to recover from the coronavirus.
India’s government told all major ports that the coronavirus fight is a valid reason to halt some operations, leaving traders in disarray about the flow of goods in and out of the country. The nation’s fuel producers are bracing for a slump in demand as the country extends the nationwide lockdown.
Indian Oil Corp. reduced crude processing at most of its refineries by 25% to 30% because of substantial decline in demand for petroleum products because of the Covid-19 outbreak, according to an emailed statement from the state refiner.
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