WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange extended losses into the fourth day Thursday, dragged lower by sliding equity markets as new and growing coronavirus cases outside China raise expectations for an inevitable declaration that the COVID-19 outbreak is a global pandemic, with deleterious consequences for crude and petroleum products demand.
After falling sharply each trade session this week, U.S. stock indexes entered correction territory on Thursday, with Dow Jones Industrials tumbling as much as 960 points in afternoon trade and the S&P 500 shedding over 3.38%. Weighed down by massive losses on Wall Street, the U.S. dollar index moved down 0.5% to 98.461 against a basket of foreign currencies, aiding front-month West Texas Intermediate futures to recover some of their earlier losses. U.S. crude benchmark traded as low as $45.88 barrel (bbl) at midafternoon Thursday -- down nearly 15% from the start of the volatile week. Analysts believe the current price level renders most of U.S. shale production unprofitable, with the breakeven price for most domestic drillers around $50 bbl.
The effects of the coronavirus, however, have yet to filter through the production and rig count data. Last week, U.S. crude oil output stood at a near-record high 13 million bpd. For a hint on future supply, traders will closely watch new rig data from Baker Hughes to be released 1 p.m. EST Friday.
On the session, NYMEX April WTI futures were down $1.64 to settle at a 14-month spot low $47.09 bbl and ICE April Brent declined $1.25 to $52.18 bbl. April Brent further narrowed its premium to $0.45 against the May contract ahead of expiration Friday afternoon. NYMEX March RBOB futures plummeted 4.43 cents to near 14-month spot low $1.4106. NYMEX March ULSD futures dropped 1.02 cents to a 31-month spot low $1.4892 gallon, with next-month delivery April contract finishing at a 0.21 cents discount to the expiring contract.
According to wire services, Saudi Aramco slashed crude oil exports to China by at least 500,000 barrels per day (bpd) in March, as the coronavirus epidemic across its industrial heartland forced refiners to lower run rates. China's General Administration of Customs data shows Saudi Arabia supplies Chinese refineries with around 1.7 million bpd and exports remained stable through the first two months of the year. As effects of coronavirus intensified, Chinese refiners resold some of those barrels on the global market, flooding Asian supply hubs. China's National Petroleum Corporation now expects a 35.7% drop in the country's fuel consumption during the first quarter.
As investors attempt to sort through damages the coronavirus has inflicted on the oil market, the unavoidable demand hit will be seen across Asian manufacturing activity. Markets will get a first glimpse of the effect of the coronavirus on Japan's industrial production this month, with fresh numbers due out 6:30 p.m. EST, followed by the weekend release of China's manufacturing indexes that will combine both January and February data. Expectations are dismal.
Market consensus calls for a 1% drop in Japan's industrial production and a staggering 5% decline in China's manufacturing, plunging the latter deep into contraction zone. After a year of simmering trade tensions, China's manufacturing index finally cracked above the 50-mark in November and held there in December.
Liubov Georges can be reached at firstname.lastname@example.org
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