Oil’s Worst Week Since 2008 Tempered By Trump’s Vow to Fill SPR
Oil headed for its biggest weekly drop since 2008 as an unprecedented dual supply-demand shock showed no signs of abating.
(Bloomberg) -- Oil posted the biggest weekly plunge since 2008, capping its most dramatic week in recent memory as major producers prepare to drench the market with supply just as the coronavirus crushes demand. But prices jumped following the close, after President Donald Trump said the U.S. would fill the nation’s strategic reserve.
Losses for the week totaled 23% after the collapse of talks between members of the OPEC+ group triggered the biggest crash in a generation. Instead of reaching a deal to cut output to mitigate the fallout from the virus, producers led by Saudi Arabia and Russia embarked on a war for market share and pledged to pump more.
Crude has also been roiled by turmoil across global markets, with investors uncertain if efforts by policy makers worldwide will be enough to tackle the economic impact of the spreading coronavirus. Apart from battering economies who are dependent on energy revenue, oil’s collapse is also hitting U.S. shale producers by forcing them to cut spending and dividends. The threat of lower driving demand sent gasoline futures to their worst week ever.
“We’ve never seen a market quite like this,” said Andrew Lebow, senior partner at Commodity Research Group. “It’s not like oil has never seen a crash before but to have both a supply and demand shock, this is one for the books.”
The unprecedented combination of concurrent supply and demand crises has pushed oil volatility to levels higher than in the 2008 financial crisis. Gasoline prices were also rattled, falling by a fifth on Thursday as U.S. President Donald Trump issued a travel ban from Europe as part of an effort to contain the spread of the virus.
“We’re going to fill it right up to the top,” Trump said in a briefing on the coronavirus outbreak, adding that he’s instructed the Energy Department to buy crude “at a very good price.” Oil lobbyists had been pressing the Trump administration to make purchases for the reserve as U.S. shale drillers face the worst crude market collapse in a generation.
The gloomy outlook for global oil demand darkened as Trump declared a national emergency in the U.S. and Europe becomes the focus of the outbreak. In one of the most bearish forecasts, Trafigura Group estimates global oil demand could contract by as much as 10 million barrels a day.
Meanwhile, the schism between Moscow and Riyadh faced an impasse with Russia and Saudi Arabia gearing up to boost output next month. The Middle East kingdom doubled down on the war for market share this week by sending a wave of crude to Europe, Russia’s traditional market, further dimming the likelihood of a reconciliation.
In another bearish sign of the market’s crisis, Brent’s structure returned to a so-called super-contango, indicating a big oversupply.
Global policy makers have so far been powerless to stem the coronavirus-driven rout that has threatened a global recession. Signs of stimulus in the U.S. came as House Speaker Nancy Pelosi said she’s near an agreement with the Trump administration on a bill to mitigate the impact of the virus. Meanwhile the European Central Bank left interest rates unchanged, although it took steps to boost liquidity.
“Oil has gotten a real one-two punch,” said John Kilduff, a partner at Again Capital in New York. “Fuel demand is going to get slashed and supply is about to flood the market. It’s going to get worse before it gets better.”
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--With assistance from Dan Murtaugh, Elizabeth Low and Alex Longley.
To contact the reporter on this story: Jackie Davalos in New York at jdavalos10@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Mike Jeffers
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