WASHINGTON (DTN) -- New York Mercantile Exchange nearest delivery oil futures and Brent crude on the Intercontinental Exchange settled sharply lower Wednesday, sinking alongside equity markets after the World Health Organization recognized COVID-19 as a global pandemic following weeks of aggressive spreading of the virus outside China.
After briefly recovering some of the week's deep losses, oil futures fell again Wednesday, pressured by building crude stocks in the United States, dismal forecasts for global demand growth and worsening outbreaks of coronavirus that has now spread across 144 countries. After much anticipation, WHO declared COVID-19 virus a global pandemic, citing "alarming levels of spread ... and alarming levels of inaction" from the world governments. There are now over 120,000 cases of infections globally and nearly 4,400 confirmed deaths, including 35 in the United States.
The coronavirus-induced selloff reached new lows on Wall Street, with Dow Jones Industrials shedding another 1,464 points and S&P 500 Index down 4.9%. Wild swings across equities come as investors scramble to assess exactly how deep the economic fallout from the viral pandemic would be.
The three major forecasters this week all drastically reduced their oil consumption projections for the current year as a result of lower economic activity and shattered demand for air travel. The Organization of the Petroleum Exporting Countries (OPEC) said Wednesday it expects virtually zero oil demand growth this year, revising its outlook down 920,000 barrels per day (bpd) from a month ago to 99.73 million bpd. OPEC economists were on the conservative side, with Paris-based International Energy Agency cutting its call for consumption growth by 1.1 million bpd to a 90,000 bpd year-on-year decline. If realized, this would be the first full-year contraction of global oil demand since the financial crisis of 2008.
At a time when demand took a massive hit, Saudi Arabia on Wednesday unveiled a plan to boost its production capacity to a record 13 million bpd in an apparent bid to pressure Russia amid a battle for market share between the world's largest oil producers. Saudi state oil giant Aramco said it had received a directive from the kingdom's ministry to hike its output capacity by more than 1 million bpd from the previous maximum 12 million bpd. This will be the kingdom's first capacity hike in over a decade, although the company did not specify the timeframe for the increase. As Saudi Arabia ratchets up tensions with former ally Russia, all forecasts point to higher crude production from OPEC members through at least 2021. Energy Information Administration, OPEC and IEA all project an oversupplied oil market this year.
Domestically, EIA reported commercial crude oil stocks increased for the seventh consecutive week through March 6, and exports declined by a staggering 25%. U.S. crude inventory built by a larger-than-expected 7.7 million barrels (bbl) during the week reviewed, lifting supplies to a 451.8 million bbl 15-week high.
The large build was chiefly attributed to a 1.014 million bpd drop in weekly crude exports from the second highest rate on record to 3.14 million bpd. At 15.702 million bpd, crude inputs held near a four-month low for a second straight week.
On the session, NYMEX April West Texas Intermediate futures expanded losses, down $1.38 to $32.98 bbl and ICE Brent contract finished $1.43 lower at $35.79 bbl. NYMEX April RBOB contract tumbled 4.68 cents to $1.1103 gallon and the front-month ULSD contract dropped 1.19 cents for a $1.2380 gallon settlement.
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