WASHINGTON (DTN) -- Except for the front-month ULSD contract, oil futures on New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled higher on Friday. However, all contracts posted sharp weekly losses after the coronavirus spread across major global economies, severely undercutting business activity and demand for crude oil. Meanwhile, Saudi Arabia and Russia are set to flood the market with cheap supplies in their battle for global market share.
Following choppy trade on Friday, NYMEX April West Texas Intermediate futures settled up $0.23 to $31.73 per barrel (bbl) and ICE May Brent contract clawed back $0.63 to $33.85 per bbl, with both contracts dropping over 23% in value this week. NYMEX April ULSD futures declined 2.24 cents to a $1.1374 gallon settlement, while shedding 16% on the week.
NYMEX April RBOB contract ended 0.17 cent higher for a $0.8992 gallon settlement and dropped over 32% in value from last Friday, March 6.
RBOB futures are typically in a seasonal uptrend this time of year, but concerns that the coronavirus pandemic will sharply reduce gasoline demand triggered a stunning reversal in the forward curve from backwardation to contango midweek.
Oil prices suffered their worst weekly loss since the 2008 global financial crisis after the coronavirus outbreak stifled global demand growth, while top producers Saudi Arabia and Russia stepped up plans to flood the market with record levels of supply. Goldman Sachs now expects the oil market to reach an unprecedented surplus of about 6 million barrels per day (bpd) by April, with inventory accumulation over the next six months similar to the buildup that occurred over 18 months in 2014-16.
"It could take a long time before pressure is eased on the market. There will be no easy way out of this oil price collapse," commented esteemed oil analyst and author Daniel Yergin.
Russian Energy Minister Alexander Novak dashed last hopes on Friday that the country might reach some sort of agreement with the Organization of the Petroleum Exporting Countries to halt the decline in prices.
"We see no ground for returning to discussions with our partners," concluded Novak.
Earlier in the week, Saudi Arabia threatened to hike its oil output capacity to 13 million bpd in the coming weeks, followed by similar pledge from United Arab Emirates that planned to pump over 5 million bpd beginning in April.
The Energy Information Administration, International Energy Agency and OPEC all revised lower their estimates for global oil demand growth this year. Paris-based IEA called for the first annualized decline in the world oil consumption rate since the global financial crisis of 2008.
Domestically, U.S. President Donald Trump declared a national emergency on Friday as a result of the coronavirus pandemic that has infected over 1,500 Americans and claimed 38 lives. Businesses and sports leagues began cancelling large scale events, closing venues and encouraging employees to work from home. Consumer sentiment index in the United States collapsed 5.4 points in early March from the 24-month high 101.0 reading just few weeks ago, reversing six consecutive months of steady increases on concern over coronavirus.
In financial markets, stocks on Wall Street suffered their worst losses since the "Black Monday" crash of Oct. 19, 1987, this week, as investors rushed for the exits, moving from equities to bonds and gold. Investors now expect Federal Reserve to cut the federal funds rates to a 0.00%-0.25% range at their policy meeting on March 18th if not sooner. This would return the fed funds rate to the range where the Federal Open Market Committee maintained it from December 2008 to December 2015.
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