Crude Oil Weekly Review: Continues to gain on the second day in a row

WTI Crude Oil Future Price (CLC1) Source: Refinitiv Eikon

The US President Donald Trump has hinted that he may intervene between Saudi Arabia and Russia price war at the appropriate time. It is to be noted that earlier, Iraq had called for an emergency meeting for the OPEC and non-OPEC oil producers seeking a consensus on among the oil-driven economies to resolve the situation.

The Oil prices were also supported by the announcement from the US Department of Energy to buy 30 million barrels of oil as a strategic petroleum reserve for the nation to be used as the emergency inventory. The announcement is said to be consequent to Trump’s directive to refill the emergency stockpiles to support the domestic oil players.

The Texas and Louisiana coasts include reserves with an available capacity of almost 77 million barrels. The emergency inventory of 30 million barrels would include both sweet and sour crude oil products with the majority from small and midsize players.

The measure seems to be better than a bailout package safeguarding the domestic players, especially in the country’s largest oil-producing state of Texas, which were earlier considering a production cut due to the fluctuations in the crude oil prices. The buying of emergency inventory might provide the much-required stimulus to the Oil & Energy players from the state.

Earlier this week, the WTI crude oil prices hit the 18-year low mark closing at US$20.37 per barrel on Wednesday, declining almost by ~50% in comparison to the closing price prior to the begul call for the price war by Saudi Arabia on 8 March 2020.

Texas Players asking for curtailing state output

Texas Oil producers have asked the state regulator to restrict the oil output in the state. The two largest companies in the state have pleaded the authorities to curtail the amount of oil companies can pump. Its first such request in the last 40 years.

Parsley Energy and Pioneer Natural Resources, the two major oil share firms want the regulator to put an upper limit on the amount of oil each oil player in the state can sent to the market.

China sings the merry song with positive anticipation on March

As per the Chinese major, Sinopec China’s refined oil demand is expected to recover in March upon the resumption of operations to normal and travel ban lift. The demand is anticipated to be 19.1% lower in comparison to the same period last year but still better in comparison to February this year.

We believe that the “V-shaped recovery” in the oil demand that was anticipated earlier is here to revive the oil industry.

China surpasses the 10 million barrels per day figure for oil imports in 2019

China, the world’s largest crude oil importer surpassing the United States in 2017, averaged a daily import of 10.1 million barrels of Crude oil per day, experiencing an increase of 0.9 million barrels per day in comparison to 2018.

Source: US EIA

The major factors for the continued growth in the imports in 2019 were the refinery capacity additions in the country and the strategic stockpiling in addition to the flat domestic production of oil in China.

Source: US EIA

In 2019, China increased its oil imports from Saudi Arabia to 1.7 million barrels per day, which is an upswing by over 0.5 million barrels per day. Also, almost 55%, which is the least since 2005, of the total crude imports came from the OPEC (Organization of the Petroleum Exporting Countries) nations.

The au courant audience must know that the OPEC+ nations which consist of OPEC and other partner countries had been cutting down the crude oil production since 2017, allowing non-OPEC countries to have an increased share in China’s oil imports. During 2019, sanctions on Iran and Venezuela affected the ability of these major countries leading to reduce their share of imports whereas Russia maintained itself as the largest non-OPEC country for oil imports in China.

Average Gasoline & Diesel prices fall in the United States

During 2019, the US average gasoline retail prices fell by US$ 0.13 a gallon as compared to the previous week. The average diesel retail prices fell by more than US$ 0.08 to US$ 2.73 a gallon.

The retail prices fell in line with the sharp fall in the crude oil prices falling majorly due to the coronavirus impact, travel ban, and the Saudi-Russia spat.

As of 13^th March 2020, stocks of the US propane/propylene declined by 0.3 million barrels to 66.7 million barrels.

18 March, the Black day for Crude oil in the 21^st century

The crude oil prices continued the slide for the first three days of the week with the worst fall on 18 March to record low prices. The Crude oil prices fell sharply due to the implementation of the travel ban in almost all geographies and a persisting situation of nation-wide quarantine in many others. In addition, the effect of the increased supply from Saudi Arabia drove the prices down further.

The US crude oil benchmark, the West Texas Intermediate (WTI) crude oil futures fell to the 18-year low levels of around US$ 20.37 per barrel. The decline in the inventory levels of the US further supported the Crude Oil price to some extent but could not save the world most essential commodity to decline further down the fathomless pit.

WTI Crude Oil Benchmark Price Chart Source: Refinitiv Eikon

We believe a solution to the Saudi Arabia-Russia spat could only be resolved in a peaceful negotiation and request the international community to come together and seek a solution for the issue.

In reaction to the declining prices, the major oil producers around the world planned to slash their respective capital expenditure such as oil & gas producers of the North American have slashed their capital spending by ~30%. Industry majors such as BP and Chevron have announced expense.

Crude oil price might further slash in the near term, majorly due to travel ban and major economies going under quarantine but China’s revival story from the Coronavirus outbreak will lead to an example for the entire world for recovery.