Oil prices dip due to shrinking demand fueled by coronavirus lockdown

LONDON: Oil prices saw a dip on Thursday, ending three sessions of gains, as movement curbs worldwide to contain the coronavirus destroyed demand and overshadowed expectations that a US $2 trillion emergency stimulus will bolster economic activity.

Brent crude LCOc1 futures fell 55 cents, or 1.9%, to $26.84 a barrel by 1055 GMT. West Texas Intermediate (WTI) crude CLc1 futures fell 79 cents, or 3.1%, to $23.70 a barrel. Both contracts are down about 60% this year.

“Oil markets received a lift from the US stimulus chatter, but for the most part activity remains rudderless, awash in a sea of oil,” Stephen Innes, market strategist at AxiTrader, said.

The US Senate on Wednesday overwhelmingly backed a $2 trillion bill aimed at helping unemployed workers and industries hurt by the coronavirus epidemic.

But with demand disappearing and output rising, the outlook for oil is bleak.

Goldman Sachs forecast global oil demand, which stood around 100 million barrels per day (bpd) last year, will fall by 10.5 million bpd in March and 18.7 million bpd in April. For the year, oil consumption is expected to contract by around 4.25 million bpd, the Wall Street bank said.

“Global isolation measures are leading to an unprecedented collapse in oil demand,” it said.

Also read: Oil prices fall by 12%, Brent slumps by 6% as coronavirus slashes crude demand

The weakening demand is leading oil refineries from Texas to Thailand to reduce operating rates.

That, in turn, will increase pressure on crude prices that Goldman expects will remain near $20 a barrel in the second quarter.

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

Oil stocks are already rising with tanks around the world filling fast despite a 50%-100% jump in leasing costs.

Efforts by the United States to persuade Saudi Arabia to limit supplies as its shale oil industry struggles with the price collapse were unlikely have much effect, Dutch bank ING said.

“Even if we do see some restraint from the Saudis, the world is still set to see a significant oil surplus over 2Q20, given the demand hit we are currently seeing. This suggests that any potential action would likely only stabilize prices, rather than push the market significantly higher.”

US crude inventories rose by 1.6 million barrels last week, the US Energy Information Administration said on Wednesday, marking the ninth straight week of increases.

Products supplied, a proxy for US demand, dropped nearly 10% to 19.4 million bpd, EIA data showed.