Meanwhile, the IEA downgrades its demand forecast: File Image/PixaBay
The two major crude benchmarks on Wednesday remained firmly in the $30s, losing more ground due to the disclosure that Saudi Aramco had been asked by Saudi Arabia‘s energy ministry to boost its production capacity to 13 million barrels per day (bpd) from 12 million bpd now.
It was a setback considering oil earlier in the day was poised to recoup almost half of Monday’s 25 percent losses, on hopes that spending cuts by U.S. shale producers would result in output cuts that would improve an inventory-heavy/declining demand market.
Brent dropped $1.27, or 3.4 percent, to $35.95 per barrel, while West Texas Intermediate declined $1.38, or 4.02 percent, to settle at $32.98 per barrel.
I would not be surprised in some day to see prices lower than $30
Victor Shum, IHS Markit
Meanwhile, the World Health Organization on Wednesday finally declaring the coronavirus to be a pandemic virtually assured increased angst among crude traders and rough weeks ahead for all commodities.
Victor Shum, vice president of energy consulting at IHS Markit, said, “Coronavirus is still spreading globally and no doubts that the virus spread in major economies like the United States will continue to hurt oil demand.
“I think we are looking at $30 levels [in Brent] and I would not be surprised in some day to see prices lower than $30.”
However, this week’s tumultuous trading activity was the result of Saudi Arabia engaging in a crude price war with Russia, and in that regard one strategist views the conflict as an opportunity for the industry to restructure.
Damien Courvalin, head of energy research at Goldman Sachs, told CNC that “This is more about a restructuring of supply – less activity by high-cost producers for low-cost producers to roll.”
Although conceding that a few months of prices in the $30s will be “painful” for major producers, Courvalin stressed there will be a point when a “material change” will happen in which overall production will fall due to low prices and higher prices will then emerge, resulting in higher net revenue in 2021 for both Saudi and Russia.
But Courvalin was seemingly the lone voice of optimism in the on-going chorus of concern from the analytical community, which now fears the coronavirus will cause a global recession.
On Wednesday, the Energy Information Administration cut its world oil demand growth forecast for the year by 660,000 bpd, now seeing demand rising by 370,000 bpd to 101.2 million bpd.
The EIA also expects to see U.S. demand fall by 350,000 bpd in the first quarter, exceeding the previous estimated decline of 260,000 bpd.