Oil prices fall as U.S. crude supplies rise a 7th straight week and Saudi Arabia moves to boost output

Oil futures fell on Wednesday, pressured by U.S. government data reporting domestic crude supplies rose for a seventh week in a row, and by Saudi Arabia’s move to increase output capacity, as it intensifies a price war with Russia that sent crude prices tumbling to four-year lows this week.

“Oil prices appear poised to make a return towards this week’s crash low as oversupply concerns will go nowhere anytime soon as the Saudis, Russians, and UAE scramble to win market share,” said Edward Moya, senior market analyst at Oanda, in a market update. The rebound in oil prices on Tuesday was “overdone and the next question on everyone’s mind should be when will prices retest Monday’s low.”

West Texas Intermediate crude for April delivery CLJ20, -3.201% on the New York Mercantile Exchange dropped 93 cents, or 2.7%, to $33.43 a barrel. The global benchmark, May Brent crude BRNK20, -3.036% lost 76 cents, or 2%, to $36.46 a barrel on ICE Futures Europe.

Oil prices bounced Tuesday, taking back a chunk of the nearly 25% plunge seen Monday, the biggest one day loss for both Brent and WTI since the Gulf War in 1991, as traders prepared for the price war to flood the world with crude at the same time demand is under pressure from the spread of the COVID-19 epidemic.

Data Wednesday from the Energy Information Administration revealed that U.S. crude supplies rose by 7.7 million barrels for the week ended March 6. The government agency had reported increases in each of the previous six weeks. Analysts polled by S&P Global Platts expected the data to show a rise of 2.5 million barrels. The American Petroleum Institute on Tuesday reported a climb of 6.4 million barrels, according to sources.

The EIA data also showed supply declines of 5 million barrels for gasoline and 6.4 million barrels for distillates. The S&P Global Platts survey had shown expectations for supply declines of 2.7 million barrels each for gasoline and distillates.

On Nymex, April gasoline RBJ20, -4.071% was off 2.2% at $1.1313 a gallon, while April heating oil HOJ20, -1.208% shed 0.9% to $1.2385 a gallon.

April natural gas NGJ20, 1.601% tacked on 1.2% to $1.96 per million British thermal units ahead of the EIA’s natural-gas supply report due Thursday.

Meanwhile, Saudi Arabia, the de-factor leader of the Organization of the Petroleum Exporting Countries, unveiled plans to boost oil-production capacity to a record 13 million barrels a day, The Wall Street Journal reported.

OPEC member United Arab Emirates, meanwhile, said its state-owned Abu Dhabi National Oil Co. will lift its production by 1 million barrels per day to more than 4 million barrels a day next month, Bloomberg News reported Wednesday.

Russia, which is not a member of OPEC, on Tuesday said it would increase output to respond to signals Saudi Arabia was preparing to boost production.

The Russia-Saudi battle comes after Moscow rejected calls by OPEC to deepen existing production cuts. Talks in Vienna collapsed Friday, meaning existing curbs will expire at the end of March and that OPEC members and their erstwhile allies can pump freely.

“Calls for an emergency meeting of the OPEC+ meeting are laughable and concerns should grow that the Trump administration will try to offer support to the shale industry,” said Moya. “The drivers on both the demand and supply side are screaming for lower oil prices in both the short- and long-term.”

In a monthly report released Wednesday, the EIA cut its oil-price and U.S. crude production estimates. It had delayed the release of the report by a day to better assess the market.

The EIA pegged its 2020 WTI oil price forecast at $38.19 a barrel, down 31% from its previous view. It also reduced its Brent crude price forecast by 29% to $43.30 for 2020. The agency expects U.S. crude production of 12.99 million barrels a day this year, down 1.6% from the previous view.

In a separate monthly report also Wednesday, OPEC slashed its forecast for 2020 growth in oil demand by 920,000 barrels a day to 6,000 barrels a day, reflecting expectations for slower economic growth due to the spread of COVID-19 outside of China.

Earlier this week, the Paris-based International Energy Agency projected oil demand would fall by 90,000 barrels a day this year, versus its previous forecast for growth of 825,000 barrels a day.

MarketWatch

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya