MARKET SNAPSHOT

By Dr. Nancy Yamaguchi

March 13, 2020: Markets collapsed this week as COVID-19 was declared pandemic. The coronavirus outbreak was forcing prices down, but the OPEC+ group could not reach consensus on production cuts, and the group disintegrated. Saudi Arabia and Russia went their separate ways, planning to send more oil into an already-oversupplied market. A prolonged price war is possible. Oil prices crashed on Monday, opening $13.22/b lower than Friday’s opening. Some trades fell below $27.50/b. Global stock markets crashed as well, with the Dow Jones Industrial Average plunging by over 2000 points on Monday. Tuesday brought a small bounce, but values slid from there. Thursday brought Wall Street’s worst day since 1987. Today, stocks are opening higher as investors seek bargains. The Dow Jones is back to 21,730, up by nearly 530 points this morning.

On Thursday, the World Health Organization declared the coronavirus, known as SARS-CoV-2 and COVID-19, a pandemic. Confirmed cases stand at 128,343, with a death toll of 4720. Widening travel bans, event cancellations, and closures are sending fuel price spiraling down. Central banks and government agencies are now working to help mitigate the impacts and protect economies. Today, futures point to a modest recovery. WTI crude futures prices opened at $30.77/b this morning, down by $15.32/b (33.2%) for the week. WTI prices currently are in the $31.00-$33.00/b range. The week is headed for another finish in the red for the third week running, with the largest decline yet.

WTI (West Texas Intermediate) crude forward prices opened on the NYMEX on Friday, March 6, at $46.09/b. Prices plunged to open at $32.87/b on Monday, recovered slightly midweek, then dropped again to open at $30.77/b today, a shocking drop of $15.32/b (33.2%). Last week, prices fell by $0.4/b, following the prior week’s crash of $7.25/b (13.5%). Our weekly price review covers hourly forward prices from Friday, March 6th, through Friday, March 13th. 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 $1.5189/gallon on Friday, March 6, and prices crashed to open at $0.8975/gallon on Friday, March 13. This was a drop of 62.14 cents (40.9%). Gasoline futures prices ranged this week from a high of $1.2348/gallon on Tuesday to a low of $0.8853/gallon on Friday, a massive range of 34.95 cents. U.S. average retail prices for gasoline fell by 4.8 cents/gallon during the week ended March 9th. Futures prices for gasoline currently are volatile, with a brief upturn overnight now reversing. The week will finish deep in the red. Trades are occurring mainly in the range of $0.88-$0.98/gallon. The latest price is $0.9139/gallon.

DIESEL PRICES

​Diesel opened on the NYMEX at $1.4917/gallon on Friday, March 6, and opened on Friday, March 13, at $1.138/gallon, a major drop of 35.37 cents (23.7%). U.S. average retail prices for diesel fell by 3.7 cents/gallon during the week ended March 9th. Retail prices for diesel have fallen for nine consecutive weeks. Diesel futures prices ranged this week from a low of $1.0799/gallon on Monday to a high of $1.3023/gallon on Wednesday, a large range of 22.24 cents. Prices are falling again currently after an overnight rally. The week is heading for a finish deep in the red. Contracts have been trading mainly in the $1.13-$1.19/gallon range. The latest price is $1.1647/gallon.

WEST TEXAS INTERMEDIATE PRICES

WTI (West Texas Intermediate) crude forward prices opened on the NYMEX on Friday, March 6, at $46.09/b. Prices crashed to $32.87/b on Monday, recovered slightly midweek, then slumped again to open at $30.77/b today, an historic drop of $15.32/b (33.2%). Prices ranged from a low of $27.34/b Monday to a high of $36.35/b on Wednesday, a range of $9.01. Today, prices are retreating again after an overnight rally. The week is heading for a finish deeply in the red. WTI futures prices currently are trading mainly in the range of $30.50-$33.00/b. The latest price is $32.73/b.

PRICE MOVERS THIS WEEK : BRIEFING

Markets collapsed this week as COVID-19 was declared a pandemic. The coronavirus outbreak was forcing prices down, but the OPEC+ group could not reach consensus on production cuts, and the group disintegrated. Saudi Arabia and Russia went their separate ways, planning to send more oil into an already-oversupplied market. A prolonged price war is possible. Oil prices crashed on Monday, opening $13.22/b lower than Friday’s opening. Some trades fell below $27.50/b. Global stock markets crashed as well, with the Dow Jones Industrial Average plunging by over 2,013 points on Monday. Tuesday brought a small bounce, but values slid from there. Thursday brought Wall Street’s worst day since 1987. The Dow Jones dove by over 2,352 points. Today, stocks are opening higher as investors seek bargains. The Dow Jones currently is back to 21,730, up by nearly 530 points this morning.

On Thursday, the World Health Organization declared the coronavirus, known as SARS-CoV-2 and COVID-19, a pandemic. Confirmed cases stand at 128,343, with a death toll of 4,720. The U.S. response is facing international criticism for its slow, uncoordinated response. Thursday, President Donald Trump ordered a stop in air travel from continental Europe. Travel bans and the cancellation of numerous public events are sending fuel prices spiraling down. Most major sporting events have been cancelled. Popular spring break destinations including Disneyland and Universal Studios are closed. Schools in Seattle, Ohio and Maryland have closed. Central banks and government agencies are now working to help mitigate the impacts and protect economies. Today, futures point to a partial recovery. Since the high point of 29,551 on February 12th, the Dow Jones Industrial Average has lost nearly 8,351 points (28.3%). WTI crude futures prices opened at $30.77/b this morning, down by $15.32/b (33.2%) for the week. WTI prices currently are in the $30.00-$32.00/b range. The week is headed for another finish in the red for the third week running, and the largest yet.

In January, we compared the coronavirus to the SARS (Sudden Acute Respiratory Syndrome) outbreak in 2003. The SARS outbreak caused crude prices to drop by over 20%. We concluded “If 2019-nCoV causes a similar drop, WTI prices could fall to approximately $47.30/b.” WTI prices crashed below our prediction two weeks ago. We noted then that the number of cases and the death toll already exceeded the 2003 SARS outbreak, so oil prices could fall by more than the 21% observed during 2003 SARS. This week brought an historically unprecedented crash. Consumers and producers now wonder, how low can prices go? Some analysts believe $20/b oil is just a matter of time. Others contend that the virus should be considered a short-term interruption only, and that business-as-usual should resume in the second quarter. In all cases, economic activity is being sharply curtailed in the first quarter of 2020.

In other supply and demand factors: The American Petroleum Institute (API) reported a larger-than-expected crude stock build of 6.4 mmbbls. The API also reported significant drawdowns of 3.1 mmbbls of gasoline and 4.7 mmbbls of diesel. The API’s net inventory draw was 1.4 mmbbls.

U.S. Energy Information Administration (EIA) official statistics showed a larger crude stock build, more than countered by significant product draws. The addition to crude stocks was 7.664 mmbbls, overcome by a drawdown of 5.049 mmbbls from gasoline stockpiles and a drawdown from distillate stockpiles of 6.404 mmbbls. The EIA net result was an inventory draw of 3.789 mmbbls.

The EIA also reported that U.S. crude production during the week ended March 6th retreated slightly to 13.0 mmbpd from the prior week’s record-high 13.1 mmbpd. According to this weekly data series, U.S. crude production averaged 13.025 mmbpd in February 2020, the highest total ever. If low prices continue, however, the growth in U.S. output is expected to flatten, and production could begin to fall.