Crude Prices Hit 4-Year Lows
March 18th, 2020
Crude oil prices fell to new 4 year lows in yesterday’s trading but RBOB gasoline futures price rose by 3.1 % mainly due to the massive drop the prior day of 23%. RBOB price has been substantially sold off as last week price fell by 35%.
The main driver pushing prices lower is the coronavirus pandemic that is expected to slow economic growth and destroy fuel demand while at the same time Russia and Saudi Arabia engage in an effort to flood the market with crude and gain market share at any cost.
The continued efforts to slow the spread of the coronavirus has countries taking unprecedented actions. The US, Canada, Europe, and Asia have told residents to stay home and have limited the number of people that can gather in a group at one time. Businesses as shutting down and others are having workers work remotely. Most schools have also shut down as everyone tries to limit the spread of the virus. Italy is talked about a lot as the evidence of how rapidly the virus can spread and why these drastic actions are needed now.
The API inventory report was released last night, and it called crude oil stocks down 421,000 barrels to a total of 452.6 million barrels. The estimates for today’s DOE numbers from the Reuters survey is that stocks of crude oil will be up 3.3 million barrels. Crude stocks at Cushing, Ok were reported up 66,000 barrels.
Gasoline stocks were reported down 7.8 million barrels, and the outlook for today is a decline of 2.9 million barrels. Distillates stocks were down 3.6 million barrels and the estimates for today are for a decline of 1.9 million barrels.
US retail sales fell by the most in more than a year in February and the coronavirus outbreak is expected to cut sales in the months ahead. The US Commerce Department said retail sales fell by 0.5% in February, the largest decline since December 2018.
Societe Generale said it expects peak oil demand destruction to occur in the second quarter with 5 million bpd of oil demand destroyed in those three month. It expects OPEC+ output to increase by 3 million bpd starting now and for this to be sustained at least in 2020.
Rates to store oil at Cushing, Oklahoma are increasing, as traders scramble to secure space in tanks to cope with falling demand and a flood of supply from the Saudi Arabian and Russian price war. Analysts estimate the glut of crude oil could reach more than 1 billion barrels. Some of the glut will be purchased by nations purchasing barrels for their strategic reserve, including India and the US, but that will only have a limited impact. The US currently has more than 450 million barrels in crude storage, not including strategic reserves. Cushing, Ok currently has nearly 38 million barrels about half of the roughly 76 million barrel capacity.
In the propane report the average estimate is looking for a decline in stocks of 105,000 barrels. The five year average for this reporting week is a decline of 1.45 million barrels.