Brent fell $4.13/bbl last week to average $59.02/bbl, and WTI fell $3.49/bbl last week to average $52.73/bbl. For the week ahead, Stratas Advisors expect weakness to persist with Brent averaging potentially below $55/bbl.
Demand fears stemming from the coronavirus outbreak are the primary impetus behind lower prices, with many Chinese refineries reportedly lowering planned February runs in an attempt to support prices. OPEC is also reportedly mulling another 500 Mb/d cut to production in an effort to support markets. The infection rate continues to rise, leading to more quarantines and transportation restrictions throughout Asia and Russia.
While the Lunar New Year holiday has officially ended, activity levels remain low due to pervasive mass quarantines and self-quarantines. Experts continue to struggle at predicting when the infection will peak due to the extended incubation period and a higher level of contagion than SARS. As the infection spreads, demand and thus prices will remain under pressure. Assuming world health authorities are able to refine diagnosis and treatment protocols to slow the rate of outbreak, the bulk of the impact will be seen in the first quarter but could be enough to turn global growth negative in 1Q2020.
Lower runs in Asia will raise crude stocks while weak demand is also building product stocks. Additionally, a potentially lower export demand could raise crude stock levels in the United States. European and U.S. run rates have so far been unaffected, but as refiners exit maintenance a lack of export demand could build stocks.
Geopolitical Unrest – Neutral
Global Economy – Neutral
Oil Supply – Negative
Drillers cut 40 oil rigs in the week to March 27, bringing down the total count to 624, the lowest since March 2017, energy services firm Baker Hughes Co. said in its weekly report.
A high-volume Wolfcamp producer by EOG in Loving County, Texas, and results from a Utica Shale well test in Ohio top this week’s drilling activity highlights from around the world.
Searcher reached a marketing and sales agreement with Timor-Leste’s Petroleum Authority, Autoridade Nacional Do Petroleo E Minerals (ANPM) on March 25 for its Offshore Timor-Leste data and study package.