Oil Price Fundamental Daily Forecast – Only Saudi’s Can Prevent Another Steep Plunge

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed on Friday as traders responded to international government pledges to inject a massive amount of funds and other measures into the global economy in an effort to limit the economic fallout from the coronavirus pandemic, despite fears the outbreak will destroy demand for oil.

At 10:40 GMT, May WTI crude oil futures are trading $22.75, up $0.15 or +0.66% and June Brent crude oil is at $28.42, down $0.23 or -0.84%.

IEA Chief Warns Oil Demand Could Sink 20 Percent

Global demand for oil could fall by 20 percent as 3 billion people around the world live in lockdown. Head of the International Energy Agency Fatih Birol, who made this prediction, also called on Saudi Arabia to rectify the situation.

“Being the president of the G20 this year, one would expect that Saudi Arabia will provide a constructive support to the stabilization of the global oil markets based on their past record,” Birol said.

US Rescinds Offer to Buy 30 Million Crude Oil Barrels

The U.S. Department of Energy is suspending its plans to buy crude for the nation’s Strategic Petroleum Reserve after the requested $3 billion in funding for the project was left out of the $2 trillion stimulus package.

“Given the current uncertainty related to adequate Congressional Appropriations for crude oil purchases associated with the March 19, 2020 solicitation, the Department is withdrawing the solicitation,” and amendment filed Wednesday said. “Should funding become secure for the planned purchases, the Department will reissue the solicitation,” it added.

The original request for proposal, filed on March 19, outlined plans to purchase the first 30 million barrels of American-made crude oil for the SPR out of a total of 77 million barrels.

But funding to execute the plan was left out of the $2 trillion stimulus package which the White House and Senate agreed to Wednesday night, and which the House is expected to vote on on Friday. Initially $3 billion had been requested for the project.

Following the bill’s passage in the Senate, Senate Minority Leader Chuck Schumer said in an email to senators that the revised version of the bill “eliminated [a] billion bailout for big oil.”

Daily Forecast

There isn’t any incentive to buy crude oil as forecasts continue to point toward $15 to $10 crude oil. The White House is urging Saudi Arabia to dial back its plan to flood the crude market. Still, any agreement to curtail supply among producers will be too little and too late in the face of an unprecedented shock for the world’s oil refining system, Goldman said.

Unless the Saudi’s rescind their threat to flood the market with crude oil, prices are doomed to drop another $5 to $10 per barrel. If they withdraw their threat then prices will surge similar amounts, but gains will be limited by extremely low demand.