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Oil Price Fundamental Weekly Forecast – Price War, Rising COVID-19 Cases Weighing on Prices

Oil prices are expected to continue to fall this week as a plunge in demand caused by the coronavirus pandemic and an unrelenting price war between Saudi Arabia and Russia showed no signs of easing.
James Hyerczyk

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed lower week despite stimulus efforts by policymakers around the world against demand destruction caused by the consequences from the rapid spread of the coronavirus. Both markets are down nearly two-thirds this year and sinking economic activity and fuel demand are expected to worsen as oil companies curtail investments in future activity.

Last week, May WTI crude oil settled at $21.51, down $1.12 or -4.95% and June Brent crude oil closed at $27.95, down $1.05 or -3.76%.

US Rig Count Plummets

U.S. energy firms cut the most oil rigs since April 2015, removing rigs for a second week in a row as a coronavirus-related slump in economic activity and fuel demand has forced massive retrenchment in investment by oil and gas companies.

Drillers cut 40 oil rigs in the week to March 27, bringing the total count down to 624, the lowest since March 2017, energy services firm Baker Hughes Company said in its closely followed report on Friday.

The oil rig count, an early indicator of future output, is down 24% from the same week a year ago when 816 rigs were active.

For the month, the oil rig count fell by 54, the biggest monthly reduction since February 2016, putting it down for the second time in three months.

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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.

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.

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.”

Weekly Forecast

Oil prices are expected to continue to fall this week as a plunge in demand caused by the coronavirus pandemic and an unrelenting price war between Saudi Arabia and Russia showed no signs of easing.

Prices are not expected to reach a bottom unless the Saudis and Russians reach a truce. This news could also trigger a short-covering rally. In order to generate a sustainable rally, the curve showing the number of new coronavirus cases in the world is going to have to flatten out.

As of Friday, the Saudis and Russians were still at a stalemate, with Saudi Arabia saying it was not in talks with Russia to stabilize oil markets despite Washington stepping in to pressure both sides to end the price war.

Furthermore, the coronavirus new case curve is still rising and showing signs of accelerating rather than flattening out.

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