After breaking below $20/bbl and setting at $19.87 for two straight days, WTI crude oil is experiencing some strong bearish pressure. The sell-off appears to be more technical in nature, as fuel prices remain in the black today.
The IEA this week reported that 2020 oil demand will be 9.3 million barrels per day (MMbpd) below 2019 levels, with short-term demand destruction closer to 30 MMbpd. The group specifically noted that, despite the good start from OPEC+ producers, no agreement could possibly address the massive supply overhang. Still, Saudi Arabia and Russia are hinting at another, deeper cut to stem the losses in the short-term, allowing markets to return to normal sooner rather than later.
With prices collapsing, markets will be looking closely at earnings reports from the major oil service providers to see the damage. Oil producers can hedge their production prices to mitigate some disadvantages when prices collapse, but service companies cannot easily protect themselves against economic damage. Sclumberger, Halliburton, and Baker Hughes are all scheduled to release earnings reports over the next week. The first two companies have announced layoffs and furloughs, while Baker Hughes has written off $15 billion in value according to Bloomberg. Service companies have barely had a time to recoup losses from the 2016 bust market, and now producers are once again asking for price concessions. Bankruptcies are expected to soar, which will slow the ability of American oil to quickly leap back when oil prices eventually return to normal levels.
When will that return to normal occur? That’s the trillion-dollar question. President Trump has laid out plans for governors to begin reopening their economies. The guidelines are available here. It stipulates that states that are on a 14-day downward trajectory in symptoms and cases may re-open certain business such as gyms, theaters, restaurants, and elective surgery can resume, while schools, bars, and senior living homes should remain closed/quarantined. Once states show success in re-opening in Phase One without a rebound in cases, schools and bars may reopen, though at-risk populations are still encouraged to shelter-in-place. If states undergo Phase Two without a rebound, they may begin opening up assisted living homes and allowing businesses to operate as normal. All of these criteria will be subject to the perspectives of state governors, who may choose to delay re-opening their economies to prevent a rebound outbreak.
Today’s Price Trend
Oil prices are flat/higher this morning, though WTI Crude came under some tough technical pressure today that’s causing it to pull away from the rest of the market. Despite small gains in Brent crude oil, WTI crude is trading at $18.15, down $1.72 (8.7%) from yesterday’s close.
Fuel prices are taking a small hit from WTI’s drop but are mostly holding their own. Gasoline prices are trading at $0.7188, up 1.4 cents (1.9%). Diesel prices are trading at $0.9438, down a fraction of a penny.