By Dr. Nancy Yamaguchi
February 28, 2020: Oil prices are in full retreat this week, along with global stock markets. Last week, investors were optimistic that the coronavirus, now renamed SARS-CoV-2, was coming under control. Venezuelan and Libyan crude supplies were constrained, and additional OPEC+ cuts were under discussion. The optimism was misplaced, unfortunately, as the disease is spreading quickly to countries outside China. Confirmed cases now exceed 82,000, and the death toll has surpassed 2800. Concerns are now large-scale: that the virus could become a pandemic that derails global economic growth. The Dow Jones Industrial Average plunged by 1190.95 yesterday (4.4%). The S&P 500 also dropped by 4.4%, while the Nasdaq Composite fell by 4.6%. These indices are now in correction territory, down more than 10% from their record closes. Today’s market opened lower, and losses are mounting. Some key indices may close the week with the heaviest losses seen since the financial crisis in 2008, which led to the Great Recession. WTI crude futures prices opened at $46.49/b this morning, down by $7.25/b (13.5%) for the week. WTI prices currently are in the $46.00-$47.00/b range. The week is headed for a finish deep in the red. The prior two weeks had been in the black, breaking a six-week string of losses.
WTI futures crude prices opened on Friday, February 21, at $53.74/b, and prices steadily sank to an open of $46.49/b today, down sharply by $7.25/b (13.5%). The low prices for WTI futures sank below $46/b this week. Gasoline and diesel prices also fell relentlessly this week. Our weekly price review covers hourly forward prices from Friday, February 21st, through Friday, February 28th. Three summary charts are followed by the Price Movers This Week briefing for a more thorough review.
Diesel opened on the NYMEX at $1.6899/gallon on Friday, February 21, and opened on Friday, February 28, at $1.4808/gallon, down sharply by 20.91 cents (12.4%). U.S. average retail prices for diesel fell by 0.8 cents/gallon during the week ended February 24th. Retail prices for diesel have fallen for seven consecutive weeks. Diesel futures prices ranged this week from a high of $1.6726/gallon on Monday to a low of $1.4408/gallon on Thursday, a huge range of 23.18 cents. Prices are falling currently, and the week is headed for a finish in the red. Contracts are moving to the next forward month. Contracts have been trading mainly in the $1.44-$1.48/gallon range. The latest price is $1.4677/gallon.
WEST TEXAS INTERMEDIATE PRICES
WTI (West Texas Intermediate) crude forward prices opened on the NYMEX on Friday, February 14, at $51.51/b. Prices opened at $53.74/b today, a recovery of $2.23 (4.3%). Prices appeared to hit bottom last week, and they rose steadily since then. Monday brought the week’s low point of $50.88/b. Investor optimism rose on the belief that the coronavirus outbreak may be coming under control, combined with oil supplies being taken off the market from Venezuela and Libya. U.S. oil inventories showed only a small crude build. The coronavirus is far from gone, however, and prices are currently trailing back down. The week appears to be heading for a finish in the black for the second week in a row, pulling up after six weekly declines. WTI futures prices currently are trading mainly in the range of $52.50-$53.50/b. The latest price is $52.80/b.
PRICE MOVERS THIS WEEK : BRIEFING
Oil prices went into full retreat this week. Early signs of optimism over coronavirus containment were premature. There are 78,499 confirmed cases in China. The rise in confirmed cases catapulted to 1,786 in South Korea. There are now 82,757 confirmed cases worldwide, and the global death toll stands at 2,814. Concerns are now large-scale: that the virus could become a pandemic that derails global economic growth. The Dow Jones Industrial Average plunged by 1190.95 yesterday (4.4%). The S&P 500 also dropped by 4.4%, while the Nasdaq Composite fell by 4.6%. These indices are now in correction territory, down more than 10% from their record closes. Over the past six trading sessions, the Dow Jones has lost over 3581 points. Today’s market opened lower, and losses are mounting. Some key indices may close the week with the heaviest losses seen since the financial crisis in 2008, which led to the Great Recession. The market sell-off seems set to continue today. WTI crude futures prices opened at $46.49/b this morning, down by $7.25/b (13.5%) for the week. WTI prices currently are in the $46.00-$47.00/b range. The week is headed for a finish deep in the red. The prior two weeks had been in the black, breaking a six-week string of losses.
Last month in this column, we compared the coronavirus to the SARS (Sudden Acute Respiratory Syndrome) outbreak in 2003. SARS was a coronavirus infecting a reported 8,422 people with a fatality rate of approximately 10%. We noted that the SARS outbreak caused a drop in crude prices. Brent crude spot prices averaged $32.77/b in February 2003, and prices dropped to an average of $25/b in April 2003. WTI crude spot prices dropped from $35.83/b in February 2003 to $28.17/b in April 2003. April was the month that the World Health Organization issued a global health alert about SARS. The WTI futures price averaged $59.86/b in December. In our article last month, we concluded “If 2019-nCoV causes a similar drop, WTI prices could fall to approximately $47.30/b.”
Today, WTI prices crashed below our prediction, opening at $46.49/b. The coronavirus now is being called SARS-CoV-2, though “COVID-19” remains in use. With the number of cases and the death toll already well in excess of the 2003 SARS outbreak, perhaps it can be expected that oil prices will fall by more than the 21% observed during 2003 SARS. Markets today remain in sell-off mode.
The market remains firmly focused on SARS-CoV-2, but other supply and demand factors continue to move. The American Petroleum Institute (API) reported a smaller-than-expected crude stock build of 1.3 mmbbls. The API also reported a small addition of 0.074 mmbbls to gasoline inventories and a 0.706-mmbbls drawdown from diesel stocks. The API’s net inventory build was 0.668 mmbbls.
U.S. Energy Information Administration (EIA) official statistics showed a smaller crude stock build and significant product draws. The addition to crude stocks was only 0.452 mmbbls, overshadowed by a drawdown of 2.691 mmbbls from gasoline stockpiles and a drawdown from distillate stockpiles of 2.115 mmbbls. The EIA net result was an inventory draw of 4.354 mmbbls. The relatively bullish numbers were unable to lend any support to prices.
The EIA also reported that U.S. crude production remained its record-high 13.0 mmbpd during the week ended February 21st. According to this weekly data series, U.S. crude production averaged 12.96 mmbpd in January 2020, the highest total ever. Approximately 1.2 mmbpd was added to U.S. crude oil output in 2019. Most forecasts predict that U.S. production will continue to grow in 2020, though some forecasts warn that U.S. shale output is heading for a decline, particularly given the low prices of the day.