Oil Futures Fall Sharply Friday

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange fell sharply on Friday, declining for the second month in a row. Concerns over coronavirus-induced demand destruction outweighed the chatter of deeper cuts by Organization of the Petroleum Exporting Countries and allied partners.

Saudi Arabia is reportedly pushing partners within OPEC+ alliance to agree on a deeper 1 million barrel-per-day (bpd) supply cut at the group's next policy meeting in Vienna on March 6. Under the new proposal, Riyadh would shoulder the bulk of the new 1 million bpd in cuts, with the rest of the group, including Russia splitting the balance. If agreed, the new deal would come on top of already existing 2.1 million bpd cuts finalized in December of last year. Analysts estimate the reduction of 3.1 million bpd will be the biggest supply curtailment in over a decade. It remains unclear whether Russia- the second largest producer within the alliance will sign on the agreement.

Earlier this month, Moscow blocked a proposal to curb 600,000 bpd recommended by the OPEC+ technical committee. Russia's energy minister, Alexander Novak indicated Friday the country might change its position, saying the demand forecasts are likely to be downgraded in the coming weeks as a result of virus reaching European Union.

World Health Organization raised the coronavirus risk level to "very high" on Friday, raising expectations health officials will shortly call the COVID-19 outbreak a global pandemic. As of Friday afternoon, there were 4,351 new coronavirus cases across 49 countries and 67 deaths.

"Since Thursady, Denmark, Estonia, Netherlands and Nigeria have all reported new cases. All nations should be prepared," said WHO Director-General Tedros Adhanom Ghebreyesus.

Ratings agency Moody's said a global pandemic would most likely trigger global and U.S. recessions in the first half of the year.

Global shares slumped again on Friday, with U.S. indexes compounding their worst weekly losses since the 2008 financial crisis. The Dow Jones Industrial Average tumbled more than 350 points, after dropping more than 1,000 points in early trading. The S&P 500 slid 2.7%. The Nasdaq Composite dropped 2%.

In recent days, U.S. interest rate traders have priced in a 25 basis-point cut in the federal funds by the end of April, according to CME Feds Watch Tool. Just one week ago, the tool forecast a 91% chance of no change to the target rate at the March 18 meeting. Friday that has fallen to 37% with a 63% chance of a rate cut. The probability for further cuts in subsequent meetings has also increased.

On Friday, April West Texas Intermediate futures sank $2.33 to a more than a year low $44.76 per barrel (bbl), while dropping 16.1% on the week and is down more than 13% on the month. ICE April Brent contract expired down $1.66 at $50.52 bbl, with the new front-month May futures settling down $2.06 at $49.67 bbl. ICE Brent futures posted a 13.6% drop this week and shed 13.1% in February. Declines in both crude benchmarks are more than 20% during the first two months of the year.

NYMEX March RBOB futures expired down 1.51 cents at $1.3955 gallon, and new front-month delivery April contract fell 3.78 cents for a $1.4828 gallon settlement. Since last Friday, Feb. 21, RBOB futures declined over 15% and posted a 6.3% drop during the past four weeks.

Exception to the complex Friday was NYMEX March ULSD contract that expired 0.14 cent higher at $1.4906 per gallon, with new front-month delivery April futures settling down 0.98 cents at $1.4773 gallon. On the week, ULSD contract shed 11.6% and is down 8.2% in value over the past four weeks.

Liubov Georges can be reached at liubov.georges@dtn.com


Liubov Georges