Oil prices rose on Friday but still fell for the week – the most volatile in the market’s history.
But that’s all history, the big event this week and for a while will be the May 1 start of the latest cap on global oil production by OPEC, Russia, and several smaller producers, plus benign support from the US and Donald Trump who has in effect undermined the American shale fracking sector’s viability by encouraging, as he did earlier this month, a deal between Russia and Saudi Arabia.
The deal took four days to put together and the 9.7 million barrels a day cut is substantial, and there is the strong possibility that another 4 to 5 million barrels a day will be cut by the likes of Canada, Norway and the natural field depletion of US fracking areas where companies large and small are cutting production.
US oil rig use is plunging – down more than 180 in three weeks and well over 50% in the past year, but the fall in demand is running ahead of the slowly falling production levels. US output is now down close to 12 million barrels a day from 13.1-13.2 million a day estimates in mid-January. But it won’t fall under 11 million barrels a day for months.
But the OPEC deal and other cuts deal isn’t enough, not with a 29 million barrels a day drop in demand this month, according to the International Energy Agency which reckons total demand this year will be around 89 million barrels, down from 101 million a day in 2019.
The 9.7 million barrels a day cut by OPEC only lasts till the end of June, then it drops to 8 million a day.
Reuters reports that there are suggestions from Russia that it might start burning oil in the open because it can’t store its surplus. That will be great for global warming. More gas is also now being flared as well around the world.
All this means the volatility we saw last week in global oil markets, especially in the US will continue as the cuts to global production can’t keep pace with the collapse in demand caused by the coronavirus pandemic and the disruptions caused by the price and volume war between Russia and Saudi Arabia.
Oil fell for the eighth week in the last week – at the same time, US oil rig use plunged again for the sixth week. The number of rigs in use fell by 60 to be down 184, or 20% in less than a month.
Brent June futures rose 11 cents, or 0.5%, to settle at $US21.44 a barrel in Europe and the US WTI crude rose 44 cents, or 2.7%, to settle at $US16.94 after trading as low as $US15.64.
That was after the negative readings on Monday and Tuesday amid chaotic trading as the May WTI contract rolled into June.
It was the third straight weekly loss for oil with Brent ending down 24%. WTI saw a 32.3% decline for the week, based on the June contract. That was the biggest weekly percentage loss on record, according to Dow Jones Market Data.
After the now-expired May Nymex contract on plunged to a negative reading for the first time ever on Monday, meaning that sellers had to pay buyers to take crude off their hands, traders have been struggling to manage the unprecedented volatility.
It will continue until mid-May when the Brent contract rolls over the then the second last week of May when the current WTI contract rolls over.
The continuing build in global stocks and still weak demand is sure to see fears of too much oil and too little storage, and a re-run of sharp price falls towards zero and fears about the glut takeover.
Baker Hughes reported on Friday that the number of active oil rigs in the US by 60 to 378 this week. That was down from 427 a year ago – a 53% fall.
Baker Hughes said producers in April cut the number of active US rigs by the most in a month since 2015. In Canada, drillers slashed the number of oil and natural gas rigs to a record low.