Author: Daniel Lerch

The market situation changed rapidly last week. On Monday, the oil traders were focused on the Saudi price war. By week’s end, however, the Saudi initiative had been overshadowed by the rapid spread of the coronavirus and its impact on oil demand. Rapidly falling demand resulted in a week of unprecedented volatility before oil prices settled on Friday at $22.43 in New York and $26.98 in London.

Global oil consumption is in free-fall, heading for the biggest annual contraction in history, as more countries introduce unprecedented measures to fight the coronavirus outbreak. Travel bans, work-from-home, canceled vacations, and disrupted supply chains across the world all mean reduced demand for fuel. As societies respond to the virus, oil demand — already hurt by China’s shut down of parts of its economy — is falling further.

Last week saw upheavals in the financial and energy markets as the coronavirus continues to spread rapidly across the world and the OPEC+ production limiting agreement broke down. OPEC responded by removing all limits on its own production. At week’s end, New York oil futures were down to $41 a barrel and London was down to $45 after Brent suffered its biggest one-day loss in more than 11 years on Friday.

As the coronavirus epidemic spreads to some 60 countries, the outlook for the oil industry and, indeed, the global economy is undergoing a sea change. Oil prices and equities are dropping rapidly as transportation and business activity is already being curtailed in many parts of the world. Brent futures settled at $50.52 Friday, down $7.98 on the week, and down 22.5 percent since January 20, when the commodities markets began reacting to the virus. Forecasters are lowering their estimates of how much the growth in oil demand will fall this year, and some are suggesting that demand may even contract. The IEA has the growth in the need for oil down to 825,000 b/d, but this could turn out to be optimistic.

Oil prices settled lower Friday, ending eight consecutive up days, due to the increasing spread of the coronavirus outside of China. London settled down 81 cents at $58.50, and New York finished 50 cents lower at $53.38. The pendulum of crude traders worrying first about the world swimming in oil and then worrying about supply shortages at the other end swung decisively to the latter on Wednesday. After reaching a one-month high on Thursday due to more sanctions on Venezuela, prices were hit hard ahead of the weekend as traders continue to be concerned over demand growth after weak Asian economic data fueled uncertainty about the economic outlook.

Oil prices rebounded last week as traders decided that the coronavirus was not going to expand much further outside of China and that control measures were starting to work. WTI closed out the week at $52 a barrel and London at $57. The on and off possibility that OPEC+ would cut production further also helped prices. However, Moscow’s resistance to further production cuts and the recent 1 million b/d drop in Libyan output seems to have put a further OPEC+ cut on hold. US crude stocks climbed for a third week as production ticked higher, and exports slowed. Commercial crude inventories increased 7.46 million barrels to 442.47 million barrels during the week ended February 7th.

Oil prices posted a fifth weekly decline, weighed down by the loss of demand from China caused by the coronavirus outbreak. OPEC and Russia tried all week to come up with a unified position on how to contain the price slide. At the close Friday, New York futures were at $50.32 after having been below $50 earlier in the week. Brent closed the week at $54.47. Today, Monday, workers in China officially went back to work after the extended New Year’s holiday, but a large, unknown number of factories, offices, schools, and business establishments remain closed.

Oil prices fell for the fourth straight week on mounting worries about economic damage from the coronavirus that has spread from China to around 20 countries. Futures closed the month down about $10 a barrel since the beginning of the year, seeing the biggest January loss since 1991. New York futures settled at $51.56 and London at $56.62. The rapid price decline is causing much consternation with OPEC+ as some commentators are talking about $40 oil if the virus situation gets much worse.