Demand Meltdown Drags Crude to Four-Year Low
It is getting tougher for refiners to make money on gasoline as demand plunges, signalling more dark days ahead for oil markets.
The US benchmark crude tumbled to a four-year low on the 16th March while gasoline futures in New York plummeted 23% to the weakest level since 2005.
The meltdown extended to jet fuel and diesel as the coronavirus outbreak restricts people’s movement globally and shuts down swathes of the world’s economy. Oil-refiners’ margins had been cushioned by nosediving crude costs, but that will be almost impossible to sustain if end-user demand keeps collapsing.
“Fuel is getting crushed,” said Phil Flynn, senior market analyst at Price Futures Group Inc. “The demand destruction we feared is already taking place.”
With airlines cutting the number of flights daily and a growing number of European countries in lockdown, oil markets are heading for an unprecedented glut.
People are driving far less, hitting demand for gasoline and diesel.
All the while, Saudi Arabia and Russia are planning to boost crude production as they engage in a price war for market share.
“It’s a double whammy,” said Scott Bauer, chief executive officer of Prosper Trading Academy in Chicago. “We haven’t seen the worst of it yet. There’s further downside for the oil market but it’s anyone’s guess how deep this goes. There’s not an expert in the world that could have predicted this.”
The spectacular plunge in crude prices has not deterred state-run Saudi Aramco from pumping historic levels of oil. The company plans to produce at its maximum capacity of 12 million barrels a day in April, Chief Executive Officer Amin Nasser told investors, adding, “I doubt if May will be any different.”
West Texas Intermediate crude for April delivery fell 9.6% to settle at US$28.70 a barrel on the New York Mercantile Exchange. Brent crude for May settlement fell US$3.80, or 11%, to US$30.05 a barrel, putting its premium over WTI at US$1.05 a barrel.
Nymex gasoline ended the session at 69 cents a gallon, almost at parity with WTI after briefly dipping below the US benchmark for the first time since 2009.
As recently as the 10th March, Nymex gasoline futures traded at a premium of almost US$18 a barrel to WTI.
Diesel and jet fuel prices in New York fell to their lowest intraday levels since early 2016.
Source: Rigzone