Demand for Gasoline Has Fallen Precipitously
March 17, 2020
The impact of the current situation has finally shown up in the Baker Hughes Rig Count as Friday’s report showed 40 wells were taken offline – dropping the total to 642 – the fastest weekly decline since April of 2015. Market watchers say that the drop two weeks ago of 19 rigs and this week’s drop of 40 will not compare to the drop in next week’s report when many are predicting the a record decline for a single week.
The Royal Bank of Canada this past week estimated US gasoline demand in the ten most traffic -congested US cities have fallen by more than 3.1 million barrels per day, a number that exceeds all of China’s gasoline consumption.
John Kemp, a Reuters reporter, says U.S. CASH CRUDE prices for light sweet oil delivered to Cushing are now below $16 per barrel and are trading at the lowest level in more than two decades. U.S. CASH CRUDE real prices adjusted for inflation are at the lowest since before the 1973 oil shock.
Saudi Arabia said it was not in talks with Russia to balance the oil markets despite increasing pressure from the USA to stop a price war amid the coronavirus pandemic and an attempt by Russia to fix a rift with Saudi Arabia. Saudi Arabia’s Energy Minister said there has been no contract between Saudi Arabia and Russia over any increase in the number of OPEC+ countries, nor any discussion of a joint agreement to balance oil markets.
Comments from a Bloomberg report: The world is drowning in oil that nobody needs and it is causing huge problems for the market. Demand has collapsed, with the grounding of much of the world’s aircraft contributing to a drop of 5 million barrels a day in consumption alone. Gary Ross, an influential oil watcher and chief investment officer of Black Gold Investors LLC, said “the physical oil market has seized up,” comments backed up by numbers showing that some producers are having to pay to have their crude taken away. While major benchmarks are still some way from such levels, West Texas Intermediate for May delivery briefly traded below $20 a barrel this morning.
Pioneer Natural Resources founder and CEO, Scott Sheffield, said the company is joining other independents to force US intervention in the Russia-Saudi Arabia standoff that’s threatening to pressure crude oil prices below $20 per barrel. He said, “we really need Trump to do something or he’s going to lose all the energy states in this election.” He warned that without intervention, “we’re going to be importing 60% of our crude again from the Middle East.”
The current OPEC+ production cut agreement is set to run out tomorrow March 31,2020. This will allow Saudi Arabia, Russia and another other producers to produce as they wish. The market has heard that Saudi Arabia plans to seriously ramp up exports if they can find buyers. It will be interesting to see how this goes in the next few weeks as there are many signs that point to a market already massively oversupplied. There are already some crude oil grades that are in the single digits and if more crude is coming, how low can it go? Of course, we have all seen the stories about negative crude price or companies having to pay to take it away. These are very extreme times.