Oil Drops On IEA Predictions Of Demand Decline

Daniel Fowler
March 27, 2020

Refiners across the world have been reducing operations as the spread of the coronavirus has led to steep falls in aviation and motor fuel demand.

Oil prices fell on March 26 following three days of gains, with coronavirus travel bans and lockdowns offsetting hopes a $2 trillion USA stimulus package will shore up economic activity.

U.S. benchmark West Texas Intermediate was down 1.5 percent, changing hands for about $24 a barrel, while global benchmark Brent crude was down 0.4 percent at around $27 a barrel. USA crude futures fell 21 cents, or 0.9 per cent, to $23.80 a barrel.

Crude oil prices on Wednesday rose 5.5 per cent to Rs 1,976 per barrel as participants widened their positions tracking a positive trend overseas.

Both contracts had posted strong gains of more than $1 a barrel earlier in the session. Inventories, which have risen for nine straight weeks, are expected to keep growing as fuel demand declines and refineries pare back activity.

More than 1000 United States coronavirus deaths, near 70000 cases
The virus has killed more than 21,000 people around the world after it was first identified in central China in late December. Most of those victims were in New York City, where hospitals are getting swamped.

The U.S.' crude oil production is expected to average 13 million bpd in 2020, according to the EIA's Short-Term Energy Outlook report for March.

USA senators and Trump administration officials have reached an agreement on a $2 trillion stimulus bill that congress was expected to pass on Wednesday.

Meanwhile, Reuters noted that oil producers are selling their crude "in the physical market at lower prices not seen since the aftermath of the Asian financial crisis of the late 1990s" - as low as $8 per barrel in the case of Venezuela's Merey crude.

At the same time, the collapse of a supply-cut pact between the Organization of the Petroleum Exporting Countries and other producers led by Russian Federation, known as OPEC+, is set to boost oil supply, with Saudi Arabia planning to ship more than 10 million bpd from May.

India, the world's second most populous country and the third-largest oil consumer, has entered a 21-day lockdown. Coronavirus-related measures have dealt such a major blow to oil demand in the short-term that the damage can not be offset by any realistic production cuts.

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