Oil Set for Weekly Gain on Risk Rally Despite Demand Devastation

Darnell Taylor
March 27, 2020

$2 trillion emergency stimulus will bolster economic activity.

West Texas Intermediate slipped 7.7 percent, or $1.89, to settle at $22.60 per barrel, while Brent fell $1.01, or 3.69 percent, to trade at $26.43 per barrel.

United States futures were notably weaker than worldwide benchmark Brent crude.

"Oil markets received a lift from the USA stimulus chatter, but for the most part activity remains rudderless, awash in a sea of oil", Stephen Innes, market strategist at AxiTrader, said.

Prices had earlier rallied strongly after US Senate leaders agreed a $2 trillion package which would be the largest ever rescue in the US, dwarfing even the bailouts of 2008 during the global financial crisis.

The losses were said to have been incurred partly due to Fatih Birol, executive director of the International Energy Agency, warning that demand could drop by as much as 20 million barrels per day (bpd), and by the White House deciding to rescind a crude buying offer after failing to win funding from Congress.

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Commercial crude oil inventories rose by 1.6 million barrels, or 0.4%, to 455.4 million barrels for the week ending March 20, the EIA data showed.

The weakening demand will lead oil refineries to cut processing rates and drive a rise in inventories, which in turn will increase pressure on crude prices that Goldman expects will remain near $20 a barrel in the second quarter.

Oil stocks are already rising with tanks around the world filling fast despite a 50%-100% jump in leasing costs.

Oil prices fell on profit taking Thursday after three days of gains, helped by the Federal Reserve's sweeping stimulus measures and optimism surrounding a US $2 trillion emergency stimulus plan.

EIA Short-Term Energy Outlook, which was published on March 11, 2020, projected that 2020 oil production will total 102.09 million bbl/day.

"The US is the most consequential oil demand region in the world and real-time Global Positioning System data suggests an 82 per cent drop in congestion in major US cities", Capital Economics said in a note.

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