MARKET SNAPSHOT

By Dr. Nancy Yamaguchi

March 6, 2020: Oil prices made an unenthusiastic rally this week, then sagged again. The coronavirus, known as SARS-CoV-2 and COVID 2019, continues to spread. Confirmed cases stand at 98,382, with a death toll of 3383. Concerns are large-scale: that the virus could become a pandemic that derails global economic growth. Last week brought a major collapse in oil and equities markets, with massive drops of the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite. The Fed cut interest rates on Tuesday by half a percentage point to shield the U.S. economy. The OPEC+ group is trying to reach consensus on an extra 1.5 million-barrel-per day production cut, though they may be at a deadlock today. These efforts slowed the decline midweek. Today, futures point to another drop in equities markets as investors continue to flock to safe havens. WTI crude futures prices opened at $46.09/b this morning, down by $7.25/b (13.5%) for the week. WTI prices currently are in the $44.00-$45.00/b range. The week appears to be headed for another finish in the red.

WTI (West Texas Intermediate) crude forward prices opened on the NYMEX on Friday, February 28, at $46.49/b. Prices recovered slightly midweek but trailed back down to open at $46.09/b today, a decline of 0.4/b (0.9%). Last week, prices crashed by $7.25/b (13.5%). Our weekly price review covers hourly forward prices from Friday, February 28th, through Friday, March 6th. 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 $1.4973/gallon on Friday, February 28, and prices crept back up to open at $1.5189/gallon on Friday, March 6. This was a mild recovery of 2.16 cents (1.4%). The recovery pales in light of last week’s massive collapse of 26.42 cents (15.9%). Gasoline futures prices ranged this week from a low of $1.4411/gallon on Monday to a high of $1.5927/gallon on Tuesday, a large range of 15.16 cents. U.S. average retail prices for gasoline fell by 4.3 cents/gallon during the week ended February 28th. Futures prices for gasoline currently are falling, and the week may finish in the red. Trades are occurring mainly in the range of $1.43-$1.50/gallon. The latest price is $1.4727/gallon.

DIESEL PRICES

​Diesel opened on the NYMEX at $1.4785/gallon on Friday, February 28, and opened on Friday, March 6, at $1.4917/gallon, up modestly by 1.32 cents (0.9%). The recovery is small when compared to last week’s collapse of 20.91 cents (12.4%). U.S. average retail prices for diesel fell by 3.1 cents/gallon during the week ended March 2nd. Retail prices for diesel have fallen for eight consecutive weeks. Diesel futures prices ranged this week from a high of $1.5766/gallon on Tuesday to a low of $1.4069/gallon today, a large range of 16.97 cents. Prices are falling currently, and the week appears to be heading for a finish in the red. Contracts have been trading mainly in the $1.41-$1.48/gallon range. The latest price is $1.4431/gallon.

WEST TEXAS INTERMEDIATE PRICES

WTI (West Texas Intermediate) crude forward prices opened on the NYMEX on Friday, February 28, at $46.49/b. Prices recovered slightly midweek but trailed back down to open at $46.09/b today, a decline of 0.4/b (0.9%). Last week, prices crashed by $7.25/b (13.5%). Prices ranged from a low of $43.17 today to a high of $48.66/b on Tuesday, a range of $5.49. Today, prices are falling, with lows nearly touching $43/b. The week appears to be heading for a finish in the red. WTI futures prices currently are trading mainly in the range of $43.50-$45.50/b. The latest price is $44.29/b.

PRICE MOVERS THIS WEEK : BRIEFING

Oil prices made an unenthusiastic rally this week, which could not be sustained. The coronavirus, known as SARS-CoV-2 and COVID 2019, continues to spread. Confirmed cases stand at 98,382, with a death toll of 3383. New cases have been diagnosed in the U.S., South Korea, and Germany. Concerns are large-scale: that the virus could become a pandemic that derails global economic growth. The Asian Development Bank (ADB) predicts that the outbreak could cut global economic growth by 0.1% to 0.4%, with financial losses between $77 billion and $347 billion. Last week brought a major collapse in oil and equities markets, with massive drops of the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite. The Fed cut interest rates on Tuesday by half a percentage point to shield the U.S. economy.

The Bureau of Labor Statistics just released the Employment Situation Report for February. According to the BLS, “Nonfarm payroll employment rose by 273,000 in February, and the unemployment rate (3.5 percent) changed little. Employment rose in health care and social assistance, food services and drinking places, government, construction, professional and technical services, and financial activities.”

The OPEC+ group is trying to reach consensus today on an extra 1.5 million-barrel-per day production cut. Russia so far has refused to commit to additional cuts, and Iran’s Energy Minister stated that there would be no deal without Russian participation.

Today, futures point to another drop in equities markets as investors continue to flock to safe havens. WTI (West Texas Intermediate) crude forward prices opened on the NYMEX on Friday, February 28, at $46.49/b. Prices recovered slightly midweek but trailed back down to open at $46.09/b today, a decline of 0.4/b (0.9%). Last week, prices crashed by $7.25/b (13.5%). WTI prices currently are falling, and they are in the $43.00-$46.00/b range. The week appears to be headed for another finish in the red, unable to pull back from last week’s price plunge.

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%. The WTI futures price averaged $59.86/b in December. We concluded “If 2019-nCoV causes a similar drop, WTI prices could fall to approximately $47.30/b.” WTI prices crashed below our prediction last week, and they remain below this threshold this week. 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.

In other supply and demand factors: The American Petroleum Institute (API) reported a smaller-than-expected crude stock build of 1.7 mmbbls. The API also reported significant drawdowns of 3.9 mmbbls of gasoline and 1.7 mmbbls of diesel. The API’s net inventory draw was 3.9 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 0.784 mmbbls, overwhelmed by a drawdown of 4.339 mmbbls from gasoline stockpiles and a drawdown from distillate stockpiles of 4.008 mmbbls. The EIA net result was a significant inventory draw of 7.563 mmbbls. The relatively bullish numbers were unable to lend much support to prices.

The EIA also reported that U.S. crude production achieved a new record-high 13.1 mmbpd during the week ended February 28th. According to this weekly data series, U.S. crude production averaged 13.025 mmbpd in February 2020, the highest total ever.