MARKET SNAPSHOT

By Dr. Nancy Yamaguchi

January 31, 2020: Oil prices are continuing to fall, as the World Health Organization officially declared coronavirus 2019-nCoV, a “public health emergency of international concern.” The outbreak is causing great uncertainty. Its duration and intensity cannot be foretold. Forecasts of demand for fuels and other commodities are being revised downward. Many flights in and out of China have been cancelled. Looking back to the SARS outbreak in 2003, crude spot prices fell by approximately 20%. If WTI prices drop along the lines seen in 2003, prices could fall below $48/b. WTI crude futures prices opened at $52.92/b this morning, the lowest opening price since October 16th 2019. WTI contracts have shifted to March forward month, and prices currently are in the $51.60-$53.50/b range. The week appears to be headed for a finish in the red, the fifth weekly decline in a row.

WTI futures crude prices opened on Friday, January 24, at $55.69/b, and prices slid to an open of $52.92/b today, down by $2.77/b. WTI futures prices dipped below $52/b midweek. Thursday’s low point of $51.66 was the lowest since May 2017. Gasoline and diesel prices also continued to fall, following crude down. Today is the last day of February forward month contracts, and contracts are moving to March. Our weekly price review covers hourly forward prices from Friday, January 24th, through Friday, January 31st. Three summary charts are followed by the Price Movers This Week briefing for a more thorough review.

GASOLINE PRICES

Gasoline opened on the NYMEX at $1.5636/gallon on Friday, January 24, and prices slid to open at $1.5225/gallon on Friday, January 31. This was a decline of 4.11 cents (2.6%.) Gasoline futures prices ranged this week from a low of $1.436/gallon on Monday to a high of $1.5353/gallon on Wednesday, a large range of 9.93 cents. U.S. average retail prices fell by 3.1 cents/gallon during the week ended January 27th. Gasoline prices currently are continuing to move down as February contracts move to March. Trades are occurring mainly in the range of $1.49-$1.52/gallon. The latest price is $1.4950/gallon.

DIESEL PRICES

Diesel opened on the NYMEX at $1.7933/gallon on Friday, January 24, and opened on Friday, January 31, at $1.655/gallon, down sharply by 13.83 cents (7.7%.) U.S. average retail prices for diesel fell by 2.7 cents/gallon during the week ended January 27th. Diesel futures prices spanned a wide range this week, ranging from a high of $1.7339/gallon on Wednesday to a low of $1.6297/gallon on Thursday, a range of 10.42 cents. The week is heading for a finish in the red—the fifth downward weekly movement in a row. Prices are continuing to trend down as contracts move to the March forward month. February contracts have been trading in the $1.62-$1.65/gallon range. The latest price is $1.6274/gallon.

WEST TEXAS INTERMEDIATE PRICES

WTI (West Texas Intermediate) crude forward prices opened on the NYMEX on Friday, January 24, at $55.69/b. Prices opened at $52.92/b today, a drop of $2.77 (5.0%.) WTI futures prices ranged from a high of $54.37/b on Wednesday to a low of $51.66/b on Thursday, a range of $2.71/b. Prices fell Monday, Tuesday, Thursday and Friday this week. The low point of $51.66/b was the lowest price since May 22nd 2017. The coronavirus outbreak was the chief market mover, though an addition to U.S. oil inventories also weighed on prices. The week appears to be heading for a finish in the red for the fifth week in a row. WTI futures prices currently are trading mainly in the range of $51.50-$53.00/b. The latest price is $51.76/b.

PRICE MOVERS THIS WEEK : BRIEFING

Oil prices continued to fall this week. WTI crude prices have been dipping below $52.00/b this morning and could potentially drop to $50/b. The World Health Organization (WHO) declared the coronavirus 2019-nCoV a global emergency. The outbreak is causing great uncertainty. Its duration and intensity cannot be foretold. A coronavirus can attack birds and mammals, and if one crosses from animal to human, it can then be transmitted from human to human. Travel within and to China is being curtailed. Market analysts believe that the outbreak could cut world oil demand by 300,000-500,000 barrels per day. The OPEC+ group is considering moving its March meeting up to February.

Thursday, the World Health Organization declared the coronavirus a “Public Health Emergency of International Concern.” The WHO has declared only five of these in the past. The main reason for the declaration was concern over the spread of the disease to other countries, where there may be limited capability to cope with the contagion. On Thursday, WHO reported that there were 98 cases reported in 18 countries outside of China. In China, the disease had caused 170 fatalities. Today’s news indicates that there are now close to 10,000 confirmed cases and 213 fatalities.

Looking back, the SARS (Severe Acute Respiratory Syndrome) outbreak in 2003 was a coronavirus, which infected over 8000 people and had a 10% fatality rate. 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. If 2019-nCoV causes a similar drop, WTI prices could fall to approximately $47.30/b.

On Tuesday, the American Petroleum Institute (API) reported a surprise drawdown of 4.3 mmbbls from U.S. crude oil inventories. The API also reported a stock build of 3.3 mmbbls of gasoline and a small drawdown of 0.141 mmbbls from diesel inventories. Industry experts had anticipated a modest crude stock build, plus a gasoline stock build and a diesel stock draw. The API’s net inventory draw was 1.141 mmbbls.

The U.S. Energy Information Administration (EIA) released more bearish set of official statistics: an addition to crude stocks of 3.548 mmbbls, an addition of 1.203 mmbbls to gasoline stockpiles, and a drawdown from distillate stockpiles of 1.289 mmbbls. The EIA net result was an inventory build of 3.462 mmbbls.

The EIA also reported that U.S. crude production remained at its new record-high 13.0 mmbpd for the third consecutive week during the week ended January 24th. Approximately 1.2 mmbpd was added to U.S. crude oil output in 2019.