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Oil futures traded lower Wednesday, beginning April on a sour note as the COVID-19 pandemic destroys demand and a price war between Saudi Arabia and Russia promises to flood the world with unneeded crude.
West Texas Intermediate crude for May delivery CL.1, -0.88% fell 12 cents, or 0.6%, to $20.36 a barrel on the New York Mercantile Exchange, while June Brent crude BRNM20, -4.33% dropped 86 cents, or 3.3%, to $25.49 a barrel on ICE Europe.
For the quarter, WTI, the U.S. benchmark, lost 66.5% to post the largest quarter percentage loss based on records dating back to March 1983. Brent, the global benchmark, saw a loss of 65.6% for the quarter—the largest quarterly decline based on records dating to June 1988.
“The Saudis will boost supply this month, as part of their price war with Russia, and the market expects to see more than 2 million barrels a day of additional supply coming from Saudi Arabia alone,” said Warren Patterson, head of commodities strategy at ING, in a note. “Expectations are that the Saudis will also keep the pressure on in May, with most in the market expecting that they will make further cuts to their official selling prices then.”
Russia also has scope to raise production while other major producers are also scrambling to preserve or build market share. The price war was triggered in early March after Moscow rejected a call by Saudi Arabia for a deeper round of output cuts in response to the demand hit expected from the COVID-19 pandemic. A round of existing production curbs expired on Tuesday.
“The scale of the surplus over 2Q20 and the continued weakness in prices does mean that pressure from the U.S. to try to stabilize the market will continue to build over the next quarter. However we still believe that any potential action taken by OPEC+ in the coming months will fall short of bringing the market back to balance,” Patterson said.
The American Petroleum Institute reported late Tuesday that U.S. crude supplies rose by 10.5 million barrels for the week ended March 27, according to sources. The data also showed gasoline stockpiles up by 6.1 million barrels, while distillate inventories declined by nearly 4.5 million barrels.
More closely watched data from the Energy Information Administration is due Wednesday morning. The EIA data are expected to show crude inventories rose by 4.6 million barrels last week, according to analysts polled by S&P Global Platts. They also forecast a supply rise of 3.6 million barrels for gasoline, while distillates stocks are seen down by 600,000 barrels.
