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Business

Ten signs the oil industry is bent out of shape

(Reuters) – The oil industry has been hit by a simultaneous demand and supply shock in March as the coronavirus pandemic cuts fuel consumption and top producer Saudi Arabia raises output to full capacity to fight a price war with rivals.

International crude oil prices have lost about 45% this month and fallen below the cost of much of the world’s production, causing energy companies worldwide to slash spending by tens of billions of dollars.

The collapse in demand and of energy diplomacy between Saudi Arabia, Russia and others have triggered unprecedented responses from governments and investors. Here are ten signs of an industry in distress.

SAUDI ARABIA GOES ALL-IN

Riyadh shocked the oil industry by going on the offensive after talks collapsed with Russia in early March on a deal to cut supply to compensate for how coronavirus was hitting demand.

Saudi Arabia slashed export prices and said it would pump at a record of 12.3 million barrels per day, pouring a flood of oil into a market that needed less. It lined up an armada of ships for export, targeting refiners that buy Russian crude, as well as the United States, wiping out profit margins for U.S. exports.

The moves were all the more shocking coming from a producer that for years has had a role akin to the industry’s central bank. The kingdom is the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC) and for decades adjusted output more than any other oil producer to keep markets balanced.

TEXAS CONSIDERS CUTTING PRODUCTION?

Producers in top U.S. producing state Texas went to regulators – and asked them to intervene to cut production. Texas does not intervene that much. The last time was in 1973. To be sure, other Texas commissioners and oil industry groups have thrown cold water on the idea.

WITH OPEC?

One of three Texas commissioners at the body that regulates the industry got a call from the secretary general of OPEC to discuss the market. Commissioner Ryan Sitton said on Friday that Texas could consider a 10% output cut, possibly in coordination with that group. Before now, U.S. shale oil producers dared not consider coordinated cuts for fear of violating U.S. anti-trust laws.

HISTORIC SELLOFFS

Three of the steepest declines in benchmark Brent crude have taken place in the last two weeks – March 9, March 16, and March 18

On March 9, Brent dropped 24%.

On March 16, Brent dropped 11%

On March 18, Brent dropped 13%.

On March 23, the U.S. gasoline market plummeted the most ever in one day, as futures lost 32% to hit a record low.

(GRAPHIC: Global Oil Slump – here)

JET FUEL IN STORAGE

Jet fuel deteriorates quickly in storage, and then it cannot be used. Yet demand has fallen so fast as airlines ground aircraft around the world that firms including oil majors BP (BP.L) and Royal Dutch Shell (RDSa.L) both sought to lease ships just to store unneeded jet fuel.

REFINING GASOLINE COSTS MONEY

You want to make gasoline? It’ll cost you. On Monday, the margins to produce U.S. gasoline – the price for a barrel of oil minus a barrel of gasoline – closed at a negative price, which means refiners would lose money buying crude to make the fuel. Gasoline typically drives the energy complex, as fuel for vehicles accounts for most oil demand worldwide. The margin fell to minus $1.11 a barrel on Monday, its lowest since 2008.

RUSSIA DIGS IN, ROSNEFT CELEBRATES SHALE WOES

Rosneft (ROSN.MM) Chief Executive Igor Sechin was unwilling to give ground as the U.S. shale industry faced collapse. Oil prices could go back to $60 a barrel if “shale oil leaves markets,” he said on Friday. On Monday, his rival, Lukoil (LKOH.MM) co-owner Leonid Fedun, said “this will be a war until exhaustion.”

ETHANOL? NEVER MIND

Corn and sugar supplies look set to rise this year as fuel suppliers make less ethanol for blending into gasoline. Companies such as France’s Tereos are shifting ethanol production to industrial uses like hand sanitizer, while sugar producers in Brazil are aiming to make more of the sweetener rather than the fuel.

LATE-DAY CRAZINESS

Volatility in oil markets has been exacerbated as oil companies stay out. That leaves speculators, and makes for rapid moves in prices around the close of trading. Thursday’s rally was so great that post-close trading had to stop; Friday was the reverse, with prices that dove by $4 at the end of trading.

“It’s a crazy market. I don’t know how to trade this,” one futures trader said.

REFINERS STAY SHUT

French major Total (TOTF.PA) shut its Grandpuits refinery, located outside of Paris, early in March for maintenance. When it was time to restart the 102,000 barrel-per-day facility, Total said…never mind. Demand weakened so quickly that it figured it would just keep it offline. While others have closed, major refiners outside Los Angeles, California, have curtailed production because of lackluster demand.

PETROL PUMPING BECOMES UNSAFE

One of the nations hit worst by the coronavirus pandemic, Italy, is simply shutting its petrol stations. They started to close on March 25 on the nation’s motorways, operators there said, because it was impossible to guarantee health safety standards and keep businesses going.

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Politics

U.S. Republican lawmaker urges State Department to boost diplomacy on oil price war

WASHINGTON (Reuters) – A top Republican lawmaker urged a U.S. State Department official on Wednesday to press ahead with diplomatic efforts to end the oil price war between Saudi Arabia and Russia that is harming U.S. oil producers.

Representative Michael McCaul applauded Secretary of State Mike Pompeo’s emphasis, in a call with Saudi Arabia’s Crown Prince Mohammed bin Salman, on the need for stability in global oil markets.

“I urge you to continue diplomatic engagement to help stem the devastating economic implications of the ongoing price war between Saudi Arabia and Russia,” McCaul said in the letter to Keith Krach, the undersecretary of state for economic growth, energy and the environment.

“We cannot… allow our industries to become the victim of someone else’s price war, so I ask you to continue utilizing every tool at your disposal to press Saudi Arabia and Russia to cut production.”

The price war and a demand drop related to the coronavirus pandemic have about halved U.S. oil prices, below $25 a barrel on Wednesday. [O/R]

McCaul, the top Republican on the U.S. House Committee on Foreign Affairs, represents Texas, one of the top U.S. oil producing states.

It was not clear exactly what the Trump administration can do to push Saudi Arabia or Russia to boost oil output. Wars over market share can sometimes last months.

Daniel Yergin, vice chairman of IHS Markit, and an energy historian, said the price war may require collaboration in a broad framework such as the G20, which Saudi Arabia is chairing this year.

“That would permit a discussion going beyond the present Russia-Saudi impasse, bringing in the United States and a larger group of producers and consumers, including Brazil, China, France,” and others, Yergin wrote in an opinion piece in the Washington Post this week.

McCaul’s letter was the latest effort by Republican lawmakers to push the administration to find an end to the price war. Earlier this month 10 Republican senators, mostly from energy producing states, urged Trump to impose an embargo on oil from Russia and Saudi Arabia.

The U.S. Energy Department will soon send Victoria Coates, who recently handled Middle East issues on the White House national security council, to Riyadh as a special energy envoy to work on stabilizing energy markets.

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Business

Oil falls for fourth week; U.S. crude posts steepest weekly loss since 1991

NEW YORK (Reuters) – U.S. crude tumbled 10.7% on Friday and posted its biggest weekly decline since the 1991 Gulf War as the coronavirus epidemic dried up global demand and as officials in Washington said an envoy would head to Saudi Arabia to deal with fallout of a Saudi-Russia oil price war.

The week featured four days of massive selling as the growing pandemic kept people from driving and booking flights. Major forecasters like trading giant Vitol and energy researcher IHS Markit said oil demand could drop by as much as 10%. Oil prices rose sharply on Thursday after days of selling, but the rally did not last.

U.S. crude prices notched a weekly loss of 29%, the steepest since the outset of the U.S./Iraq Gulf War in 1991. Brent crude dropped by 20%. Both benchmarks have dropped for four straight weeks.

“With the economy continuing to grind more and more to a halt, it’s clear the demand destruction is continuing to grow. Whatever efforts are being made to cut production in the U.S. and capital expenditures, it’s not enough right now,” said John Kilduff, a partner at Again Capital Management in New York.

On Friday, Brent crude futures LCOc1 fell $1.49, or 5.2%, to settle at $26.98 a barrel. U.S. crude futures for April CLc1 fell $2.69, or 10.7%, to settle at $22.53 a barrel. The front-month contract expires on Friday. The more active U.S. crude contract for May CLc2 settled down $3.28, or 12.7%, at $22.63.

U.S. crude has lost half its value in the past two weeks, and Brent has dropped about 40%, as the pandemic has cut demand at the same time as a collapse of coordinated output cuts by the Organization of the Petroleum Exporting Countries (OPEC) and allied producers including Russia.

U.S. officials scrambled to respond on Friday, saying they would send a U.S. Energy Department official to Saudi Arabia for several months to work on stabilizing energy markets. Also, a Texas state regulator spoke with OPEC Secretary General Mohammad Barkindo about the possibility of a global production cut.

Texas regulators have not intervened to cut output among state producers since 1973. The American Petroleum Institute weighed in against the idea on Friday, saying quotas do not work.

“As far as a coordinated response with OPEC, it’s hard to see a plan coming together along those lines,” Kilduff said.

Prices dropped sharply just before Friday’s close, as hedge funds and other money managers rushed to get out of the contract on its final day of trading, pushing the expiring April contract down by twice as much as the current May contract, said Bob Yawger, director of Energy Futures for Mizuho.

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Saudi Arabia said it would push its production to a record 12.3 million bpd and booked shipments to send oil around the globe, refusing entreaties to rein in output. U.S. elected officials have urged the Trump Administration to get involved.

Traders and analysts were scrambling to revise down forecasts for oil demand, as government lockdowns to contain the coronavirus outbreak have rapidly cut fuel consumption.

“Global demand could easily drop by 10 million barrels per day or more,” said Giovanni Serio, head of research at Vitol. Others, including IHS Markit and Standard Chartered bank, have made similar predictions.

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Business

OPEC supply curbs, U.S. measures could support oil prices near term: Goldman

(Reuters) – Supply restraint by core-OPEC producers could push second-quarter Brent oil prices up to $30 a barrel, while U.S. measures to support the market could underpin prices in the near term, Goldman Sachs said in a research note.

Citing Wall Street Journal reports that the United States was considering intervening in the ongoing Saudi-Russian price war and Texas regulators may curb oil output, the U.S. investment bank said such action would reduce global and U.S. domestic supplies.

U.S. crude oil prices rose more than $1 on Friday, extending steep gains from the previous session, after U.S. President Donald Trump said he would “get involved” in the price war at an “appropriate time”.

While any U.S. measures could support the oil market into the second half of the year, however, Goldman Sachs said accompanying supply cuts would still not be enough to offset the 8 million barrels per day (bpd) demand loss – brought about by countries slowing economic activity to halt the spread of the coronavirus which has caused nearly 10,000 deaths worldwide.

“Medium-term, the impact of such policies will depend on their political viability given the upcoming presidential election,” Goldman Sachs said in the note issued on Thursday.

U.S. production quotas could create a $5 to $10 upside to Goldman Sachs’ West Texas Intermediate price forecast of $40 to $45 a barrel in 2021, the bank said.

While a return to U.S. oil supply management policies of the 1970s and 80s would “help support prices in the third and fourth quarter above our $30 and $40 a barrel Brent forecast, they would simply replace OPEC’s artiļ¬cial price support policy with another,” the bank said, referring to the Organization of the Petroleum Exporting Countries, of which Saudi Arabia is a key member.

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Business

Oil rockets nearly 20% as investors hail coronavirus stimulus spending – for now

TOKYO (Reuters) – Oil prices surged as much as nearly 20% on Thursday, bouncing back from days of heavy losses in a relief rally that may yet be short-lived, analysts warned, but which was stoked by economic stimulus efforts to ward off a global coronavirus recession.

Brent crude LCOc1 was up $2.10, or 8%, at $26.98 a barrel by 0028 GMT after tumbling 13% on Wednesday in a third day of relentless selling. U.S. oil CLc1 gained $3.44, or 17%, to $23.81 a barrel after slumping nearly 25% in the previous session.

“After a 24% crash, oil prices are firming up on some selling exhaustion and as U.S. and European leaders unleash … aid and stimulus,” said Edward Moya, senior market analyst at OANDA in New York.

In the latest move by a central bank to try to halt the spiraling economic and financial crisis sparked by the coronavirus epidemic, the European Central Bank kicked off a 750 billion euro ($820 billion) emergency bond purchase scheme after an unscheduled meeting on Wednesday.

Still, the spread of coronavirus showing no sign of abating. Countries on every continent have resorted to drastic lockdowns, steps to try to tame a virus that has now infected more than 200,000 people worldwide, killing more than 8,000, with a major global recession in prospect.

OANDA’s Moya cautioned that the selling could start again in oil markets.

“A bottom for oil is not in place, but we could finally see some stabilisation if financial markets can maintain a somewhat constructive tone with all the stimulus that is about to hit,” he said.

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Business

Oil slumps below $30 a barrel as coronavirus spreads, OPEC rancor remains elevated

NEW YORK (Reuters) – Oil prices fell below $30 a barrel on Monday as the worldwide coronavirus outbreak worsened over the weekend, exacerbating fears that government lockdowns to contain the spread of the disease would spark a global recession.

Top global oil producers Saudi Arabia and Russia, having failed to agree on a plan to curb supply as the fall in global economic activity destroys oil demand, and have turned on each other to start a price war.

Saudi Aramco reiterated on Monday its plans to boost output to record levels to take a bigger share of the global market.

Brent crude LCOc1 settled down $3.80, or 11.2%, to $30.05 a barrel. The international benchmark earlier fell to $29.52 a barrel, its lowest since January 2016.

U.S. West Texas Intermediate (WTI) crude CLc1 fell $3.03, or 9.6%, to end at $28.70 a barrel, its lowest since February 2016.

Saudi Aramco is likely to sustain higher oil output planned for April in May, Chief Executive Amin Nasser said, signaling the top oil-producing company is prepared to live with low oil prices for a while.

The coming flood of supply from Saudi Arabia and other producers could result in the largest surplus of crude in history, said global information provider IHS Markit.

The coronavirus outbreak, which has infected at least 174,000 people and killed around 6,700, already has caused oil prices to plummet by 50% since the start of the year. Many forecasters have adjusted down estimates on demand for crude, as the virus disrupts business activity, travel and daily life.

With Saudi Arabia and Russia pledging to boost production, IHS Markit estimates that oversupply of oil could come to 800 million to 1.3 billion barrels. The projection is two to three times what existed in late 2015 to early 2016, when the Organization of the Petroleum Exporting Countries pumped more oil to combat the growing U.S. shale industry.

“The last time that there was a global surplus of this magnitude was never. Prior to this, the largest six-month global surplus this century was 360 million barrels. What is coming will be twice that or more,” said Jim Burkhard, vice president and head of oil markets at IHS Markit.

An OPEC and non-OPEC technical meeting planned for Wednesday in Vienna has been called off as attempts to mediate between Saudi Arabia and Russia after the collapse of their supply cut pact made no progress, sources said.

CENTRAL BANK ACTION

Central banks globally took action over the weekend to try to quell the economic fallout of the pandemic, but the measures did little to strengthen stock markets in freefall, as investors anticipate a sharp contraction in demand in coming weeks anyway.

The U.S. Federal Reserve on Sunday slashed its key rate to near zero, triggering an unscheduled rate cut by the Reserve Bank of New Zealand to a record low as markets in Asia opened for trading this week.

The Bank of Japan later stepped in by easing monetary policy further, while Gulf central banks also cut interest rates.

“The price response is understandable, given that lower interest rates and new bond purchasing programmes will do nothing to combat the current weakness of oil demand,” Commerzbank analyst Carsten Fritsch said.

In China, where the virus began, daily refinery throughputs dropped 4.8% in the first two months of the year, sliding to the lowest level since December 2018, data from the National Bureau of Statistics showed on Monday.

Brent’s premium to WTI CL-LCO1=R narrowed to less than $1 during Monday’s session, falling to its lowest since 2016, making U.S. crude oil uncompetitive in international markets.

Graphic – Brent’s premium to WTI: here

Numerous U.S. oil companies have swiftly cut back spending, with analysts anticipating consolidation or restructurings as a result of the supply shock. U.S. crude output has grown in recent years to nearly 13 million bpd, making it the world’s largest producer.

“Some of them (U.S. shale oil companies) may not survive prolonged low oil prices, and in this event U.S. production would decrease. Less crude availability in the U.S. is likely to reduce the WTI discount to Brent,” Societe Generale analysts in a note to clients.

Related Coverage

  • U.S. gasoline refining margins settle at lowest since December 2008
  • Factbox: Oil products markets in turmoil as coronavirus infects demand

U.S. President Donald Trump said on Friday that the United States would take advantage of low oil prices and fill the nation’s emergency crude oil reserve. The move is aimed to help energy producers struggling from the price plunge.

The United States could begin purchasing domestically produced crude oil for the Strategic Petroleum Reserve as soon as two weeks from now, and fill it in several months, an Energy Department source said on Monday. However, the purchases are not seen as likely to offset the drop in demand nor the increase in supply, Energy Aspects said in a note.

U.S. oil output growth from the Permian basin is expected to offset declines in every other shale formation in April, helping push overall production up by about 18,000 barrels per day (bpd) to a record 9.08 million bpd, data showed.

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Business

Brent falls 10%, WTI below $30 as coronavirus spreads

LONDON (Reuters) – Brent fell by 10% on Monday, and U.S. crude to below $30, as emergency rate cuts by the U.S. Federal Reserve and its global counterparts failed to tame markets and China’s factory output plunged at the sharpest pace in 30 years amid the spread of coronavirus.

Brent crude was down $3.58, or 10.6%, to $30.27 a barrel by 1231 GMT. The front-month price had risen $1 earlier in the session.

U.S. West Texas Intermediate (WTI) crude was at $29.24, down $2.49 or 7.8%.

To combat the economic fallout of the pandemic, the Fed on Sunday cut its key rate to near zero, triggering an unscheduled easing by the Reserve Bank of New Zealand to a record low as markets in Asia opened for trading this week.

The Bank of Japan later stepped in by easing monetary policy further, and Gulf central banks also cut interest rates. However, the measures failed to calm the investors, and stock markets weakened again.

“The price response is understandable given that lower interest rates and new bond purchasing programs will do nothing to combat the current weakness of oil demand,” Commerzbank analyst Carsten Fritsch said.

He added that the more countries freeze public life, close their borders and cancel flights, the greater the impact will be on oil demand, especially as this also involves economic activity being generally scaled down.

Meanwhile, China’s industrial output fell by a much larger than expected 13.5% in January-February from the same period a year earlier, the weakest reading since January 1990 when Reuters records began.

Brent’s premium to WTI narrowed to less than $1, close to its narrowest since 2016, making U.S. crude oil uncompetitive in international markets.

(Graphic: Brent’s premium to WTI png, here)

“The relative weakness in Brent shouldn’t come as too much of a surprise, given the severity of the breakout across Europe,” said ING analyst Warren Patterson.

“Another factor offering relatively more support to WTI is news that President Trump has ordered Strategic Petroleum Reserves to be filled up at these lower price levels.”

U.S. President Donald Trump said on Friday that the United States would take advantage of low oil prices and fill the nation’s emergency crude oil reserve, in a move aimed to help energy producers struggling from the price plunge.

Oil prices have also been under intense pressure on the supply side, as top exporter Saudi Arabia ramped up output and slashed prices to increase sales to Asia and Europe.

Related Coverage

  • Stock market rout doubles pain for energy firms that took shares for deals

This month, the Organization of the Petroleum Countries and Russia failed to extend production cuts that began in January 2017 aimed at supporting prices and lowering stockpiles.

An OPEC and non-OPEC technical meeting planned for Wednesday in Vienna has been called off as attempts to mediate between Saudi Arabia and Russia after the collapse of their supply cut pact made no progress, sources said on Monday.

Kremlin spokesman Dmitry Peskov also said a decline in oil prices did not come as a surprise, and that Moscow did not have any immediate plans for any contacts with the leadership of Saudi Arabia.

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Business

Oil slumps again as coronavirus hits demand and price war bites

SINGAPORE (Reuters) – Oil fell on Monday as an emergency rate cut by the U.S. Federal Reserve failed to soothe global financial markets panicked by the rapid spread of the coronavirus, while a price war between top producers added to a growing supply glut.

Brent crude fell $2.07 to $31.78 a barrel by 0729 GMT, extending last week’s plunge of 25%, which was the largest weekly fall since 2008. The front-month price opened at a high of $35.84 but slipped to a low of $31.63.

U.S. crude was at $30.35, down $1.38 after slipping below $30 earlier in the session, losing ground despite U.S. President Donald Trump’s pledge to fill strategic petroleum reserves (SPR) in the world’s largest oil consumer “to the top”.

“While helpful on the margin, such (SPR) policy pales in comparison to a coronavirus plagued market that is measured in months or a price war that is expected to last several quarters or longer,” RBC Capital Markets analyst Michael Tran said.

With current SPR stockpiles at 634 million barrels, or 80 million barrels less than a nameplate SPR capacity of 714 million barrels, the government buying would clean up only about 20 days of a global overhang that RBC estimates at an imbalance of 4 million bpd, Tran said.

The U.S. Fed slashed interest rates to near zero on Sunday in its second emergency cut this month, and said it would expand its balance sheet by at least $700 billion in coming weeks in a bid to ease tension in financial markets.

Oil prices have come under intense pressure on both demand and supply sides: Worries about the coronavirus pandemic slashing oil buying persist, while oversupply fears have grown after top exporter Saudi Arabia ramped up output and slashed prices to increase sales to Asia and Europe.

Earlier this month, the Organization of the Petroleum Countries (OPEC) and Russia failed to extend a production cut agreement that has been supporting prices since 2016.

“Fear remains the crux of the problem here as market players remain unconvinced that monetary policy easing and liquidity injections will solve an essentially healthcare crisis,” OCBC Bank’s economist Selena Ling said.

“The end-game to me remains not about more policy bazookas, but a peak in global COVID-19 infections and fatalities, and, or a COVID-19 vaccine cure on the horizon.”

Despite the massive drop in both oil and natural gas prices last week, the U.S. oil drilling rig count rose for a second week in a row to its highest since December, energy services firm Baker Hughes Co said in its closely followed report on Friday.

The number of rigs is expected to fall, however, as producers deepen spending cuts on new drilling.

More pain will be felt by U.S. producers as Brent’s premium to WTI is close to its narrowest since 2016, making U.S. crude oil uncompetitive in international markets. Exports are set to fall by 1 million barrels per day each in April and May, sources have said.

“The big loser will be U.S. shale, where the Republican government will possibly face a bailout decision on a heavily indebted industry sooner rather than later,” said Jeffrey Halley, a senior market analyst at OANDA in Singapore.

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Business

Oil slides again, squeezed between coronavirus demand hit and price war bite

SINGAPORE (Reuters) – Oil extended losses on Monday as an emergency rate cut by the U.S. Federal Reserve failed to soothe global financial markets panicked by the rapid spread of the coronavirus while a price war rages on between top producers.

Brent crude fell $1.13 to $32.72 a barrel by 0230 GMT, tumbling after last week’s plunge of 25%, the largest weekly fall since 2008. The front-month price opened at a high of $35.84 but slipped to a low of $31.63.

U.S. crude was at $31.01, down 72 cents after slipping below $30 earlier in the session, despite U.S. President Donald Trump’s pledge to fill strategic oil reserves in the world’s largest oil consumer “to the top”.

The U.S. Fed slashed interest rates on Sunday in its second emergency cut this month, and said it would expand its balance sheet by at least $700 billion in coming weeks in a bid to ease tension in financial markets.

Oil prices have come under intense pressure on both demand and supply sides: Worries about the pandemic slashing oil buying persist, while oversupply fears have grown after top exporter Saudi Arabia ramped up output and slashed prices to increase sales to consumers in Asia and Europe.

Earlier this month, the Organization of the Petroleum Countries and Russia failed to extend a production cut agreement which has been supporting prices since 2016.

“Fear remains the crux of the problem here as market players remain unconvinced that monetary policy easing and liquidity injections will solve an essentially healthcare crisis,” OCBC Bank’s economist Selena Ling said.

“The end-game to me remains not about more policy bazookas, but a peak in global COVID-19 infections and fatalities, and, or a COVID-19 vaccine cure in the horizon.”

Despite the massive drop in both oil and natural gas prices last week, the U.S. oil drilling rig count rose for a second week in a row to its highest since December, energy services firm Baker Hughes Co said in its closely followed report on Friday.

Still, the number of rigs is expected to fall as producers deepen spending cuts on new drilling.

More pain will be felt by U.S. producers as Brent’s premium to WTI is close to its narrowest since 2016, making U.S. crude oil uncompetitive in international markets. Exports are set to fall by 1 million barrels per day each in April and May, sources have said.

“The big loser will be U.S. shale, where the Republican government will possibly face a bailout decision on a heavily indebted industry sooner rather than later,” said Jeffrey Halley, a senior market analyst at OANDA in Singapore.

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Business

Oil prices set for biggest weekly drop since 2008

LONDON (Reuters) – Oil prices were set for their biggest weekly slide since the 2008 financial crisis despite a 5% bounce on Friday, as the coronavirus outbreak threatened demand and crude producers promised more supply.

Brent crude LCOc1 was up $1.83, or 5.5 on the day%, at $35.05 per barrel by 1100 GMT but were still 23% lower on the week – the biggest weekly drop since December 2008.

U.S. West Texas Intermediate (WTI) crude CLc1 was up $1.54 cents, or 4.9%, at $33.05 per barrel but was also on track to lose a fifth of its value over the week.

“It’s been a very rough week and so it’s not impossible people are locking in ahead of the weekend,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

World stocks were also set for their worst week since 2008, with the coronavirus sparking panic selling across markets. [MKTS/GLOB]

Adding to pressure on oil prices, already knocked by the virus as fewer people travel and business events are scrapped, major oil producers were pumping more crude into the market.

Saudi Arabia, the world’s largest exporter, and the United Arab Emirates offered more to customers OPEC’s talks with Russia and others on supply restraint collapsed last week.

Russia, the world’s second-largest producer, has shown no interest in agreeing to further output curbs with the Organization of the Petroleum Exporting Countries.

Russian oil producers met Energy Minister Alexander Novak on Thursday but did not discuss a return to the deal. The head of Gazprom Neft said it planned to hike production in April, following the talks.

“It’s a problem of an oil price war in the middle of a constricting market when the walls are closing in,” U.S. energy historian Daniel Yergin said.

(GRAPHIC: Analysts cut oil price forecasts for 2020 – here)

Goldman Sachs said it now expected a record high oil surplus of 6 million barrels per day (bpd) by April, in a global market that usually consumes about 100 million bpd.

A Reuters survey showed analysts slashed their forecasts of Brent crude prices to $42 a barrel on average in 2020, compared to the $60.63 consensus in a February poll.

“The avenues for a quick off-ramp to the Saudi/Russia price war appear to be closing,” RBC Capital Markets analyst Helima Croft said.

But the price slump may reduce some supply, by forcing out more costly producers.

Energy companies in the United States, which has surged to become the world’s biggest crude producer because of a boom in pricier shale oil, are preparing to cut investment and drilling plans due to plunging prices.

(GRAPHIC: North American oil producers slash spending – here)

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