Oil Prices Drop as Saudi Arabia Boosts Supply
April 01 2020 - 9:30AM
Dow Jones News
By Anna Hirtenstein
Oil prices dropped as Saudi Arabia made moves to worsen the
oversupply of crude in the market amid the country's price war with
Russia.
Brent crude, the global benchmark, declined 4.9%, trading below
$25 a barrel in the European morning and close to the 17-year low
it hit last month. Its U.S. counterpart, West Texas Intermediate,
fell 1.7%.
Saudi Arabia raised production above 12 million barrels a day on
Wednesday, following through on threats it made in recent weeks.
That's about two million barrels a day more than a month ago.
Also weighing on prices, the Organization of the Petroleum
Exporting Countries failed to agree on whether to meet this month
for an emergency discussion on recent volatility in oil markets.
This signaled a widening rift between members and reduced the
likelihood of supply cuts in the near future.
President Trump said Tuesday that he has raised the issue of the
oil market's struggles with Russian President Vladimir Putin and
Saudi Crown Prince Mohammed bin Salman.
"I think many are quite skeptical about what they can really do.
There's still problems with the coronavirus with forecasts of 20%
to 25% of oil demand gone," said Thina Saltvedt, chief energy
analyst at Nordea. "Even if we get some kind of agreement, it will
be difficult to balance the market for a while."
Oil prices have just closed out their worst quarter on record,
with Brent declining more than 60% from the start of the year. The
combination of a demand shock from governments shutting down
countries to halt the spread of the coronavirus and an oil-price
war between Russia and Saudi Arabia has resulted in unprecedented
supplies of oil in the market.
Statistics on inventories in the U.S. Tuesday showed the extent
of the oversupply. Crude inventory growth was over two times more
than survey estimates at 10.5 million barrels in the latest week,
and gasoline was more than three times higher. Traders are awaiting
additional numbers from the U.S. Department of Energy, which will
be out later Wednesday.
The benchmark contract for selling Brent crude forward changed
from May to June on Wednesday, prompting a wave of activity among
investors as they closed out previous contracts, bought oil at the
spot price and sold it forward in a fresh contract.
Normally this could push spot prices up, but the record-high
costs for storage are compressing it, said Bjarne Schieldrop, chief
commodities analyst at Nordic bank SEB. Investors can only buy
crude at rock-bottom prices because they have to factor in the high
cost of storing it until their contract expires, he said, adding
that the price of renting a certain class of tanker has risen to
$200,000 a day, up from an average of about $30,000 last year.
"The higher the cost it is to rent, the bigger the discount for
spot prices must be," Mr. Schieldrop said. "In this case we need a
big difference between the spot and forward; the spot needs to move
rapidly down."
Write to Anna Hirtenstein at anna.hirtenstein@wsj.com
(END) Dow Jones Newswires
April 01, 2020 10:15 ET (14:15 GMT)
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