U.S. crude falls below $ 20 for the first time in eighteen years

  • Date: Mar 31, 2020
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On Monday (March 30), US crude oil fell to its lowest level in 18 years, and once fell below the $ 20 mark to $ 19.92. Worries about demand and continued concerns over price wars continued to weigh on oil prices; it currently rebounded slightly to around 20.56.

Last Friday (March 27), despite the U.S. signing the largest US $ 2 trillion stimulus bill ever, the U.S. stock market continued to fall as the continued spread of the U.S. outbreak offset the positive effect of the stimulus, which caused oil prices to fall by more than 5%. .

As U.S. crude oil fell to around $ 20, Canadian crude oil was less than $ 10, and increasing downward pressure on the economy forced the country’s central bank to cut interest rates for the second time this month.

Nevertheless, most agencies continue to lower their oil price targets, as the price war between Saudi Arabia and Russia shows no signs of abating, and with the surge in production, global crude oil storage has approached its limits, which may cause oil prices to fall further. The head of the International Energy Agency believes that there is still room for 20% decline in oil prices.

As U.S. crude oil falls below the key support of $ 20, there is room for further decline. Follow this week’s US jobless claims data, ISM manufacturing PMI data, and API and EIA crude and gasoline inventory data for clues.

Worry over demand has outweighed the impact of fiscal stimulus, and oil prices continue to be under pressure

Oil prices fell by more than 5% on Friday, the weekly decline for the fifth consecutive week, and US crude oil continued its decline on Monday and refreshed its low since February 2002. The damage caused by the epidemic overwhelmed the stimulus efforts of global policy makers.

On Friday (March 27), the United States signed the largest ever US $ 2 trillion stimulus bill on Friday. Treasury Secretary Mnuchin said the small business loan program will start this week. It is also reported that the Trump administration is preparing to suspend import duties for three months to help the economy withstand the impact of the epidemic.

Nevertheless, the U.S. stock market plummeted on Friday, ending a three-day rally. As concerns about the fate of the U.S. economy resurfaced, diagnosed cases in the U.S. continued to rise.

Mr Trump said he would extend guidance aimed at slowing the spread of the epidemic from the previously scheduled Easter on April 12 to April 30. He also said that the number of deaths in the epidemic could reach 2.2 million, and if the United States can control it at 100,000-200,000, it means that we “do a good job.”

The market is assessing the impact of the epidemic on the U.S. economy, and oil prices are also expected to be pressured in a short time

The market is still assessing the impact of the epidemic on the US economy. As the world’s largest energy consumer, the US economic recession may trigger further declines in demand.

On Friday, consumer confidence in the United States fell to a low of nearly three and a half years in March as the epidemic completely changed the lives of Americans and the sluggish consumer spending in February strengthened analysts’ expectations for a deep recession. The University of Michigan’s final consumer confidence index this month fell to 89.1 from 101.0 in February, the lowest level since October 2016. This is the largest monthly decline in the index since the worst of the financial crisis in October 2008.

In general, with the surge in the number of initial jobless claims, a decline in consumer confidence will further weigh on the US economy. The current consensus in the market is that the US recession is no longer safe.

At the same time, data released last week showed that more than 3 million people applied for unemployment benefits because of widespread shutdowns across the United States and many people were fired. But Kaitou Macro expects the number released this week to climb to 5 million? .

According to Michael Pearce, senior senior economist at Kaitou, in view of the surge in initial jobless claims to more than 3 million, it seems to only account for a small portion of the number of applications reported in some states, especially California. So we are going to raise this number to nearly 5 million people

In fact, as the downward pressure on the global economy has increased, more institutions and market participants have further reduced their oil price expectations. Russia ’s Deputy Minister of Energy Pavel Sorokin said that measures to control the spread of the epidemic have led to oil demand in the United States, Europe and Asia. Daily reduction of about 15 million to 20 million barrels.

JBC Energy, an oil and gas research group, said that it had “substantially” lowered its oil demand forecast for 2020 and expected an average decline of more than 7.4 million barrels per day.

Global crude oil energy storage is approaching the limit, or further suppress oil prices

Real crude oil traders said that they expected that by May, shale oil prices in the Permian Basin of the United States would fall another $ 10 per barrel, and that the storage capacity of oil storage tanks in the region and the country would be fully used. This will reduce the price of Permian shale oil to single digits, and the oil production of the Permian oil fields will be about 5 million barrels per day.

AndaOanda senior market analyst Edward Moya said the lack of crude oil storage was a problem. If Saudi oil is not stored anywhere during the price war, energy prices could fall further.

“It seems the market will be chaotic as producers start running out of crude oil reserves.” Moya said: “About three-quarters of the world’s storage facilities are full.

“If Saudi Arabia and the Russians continue to release record oil supplies next month, the energy market will have to prepare for further declines in oil prices.”

Faith Birol, head of the International Energy Agency, also said that oil prices could fall by 20% due to a blockade of 3 billion people worldwide.

All grades of Canadian crude fell below $ 10, the Bank of Canada cut interest rates for the second time to support the economy

With the continued decline in oil prices, the price of crude oil in the United States has dropped to around $ 20, which has caused many shale oil producers to be on the verge of bankruptcy. However, as the price of U.S. crude oil has always been higher than that of Canadian crude oil, the continued decline of U.S. crude oil has caused the price of Canadian crude oil to fall below $ 10 per barrel. Canadian benchmark oil Canada’s Western Select Oil has fallen to around $ 6.

In response, RBC Economics said: “The plunge in oil prices will once again cause a heavy blow to the country’s oil-producing regions, most of which have not fully recovered from the plunge in 2014-2016. It will greatly reduce the energy sector Cash flow and cut government royalties. ”

The investment bank also warned that the entire Canadian economy is facing huge potential for unemployment, with the energy industry being particularly hard hit.

Affected by this, the Bank of Canada last Friday cut the target interest rate for the third time this month to the lowest level in 10 years, and introduced what observers called the first quantitative easing plan, saying it would buy public debt and commercial bonds.

The Bank of Canada unexpectedly cut its overnight interest rate by 50 basis points from 0.75% to 0.25%, its lowest level since June 2010. This is the second unexpected rate cut in two weeks.

Worries about demand make the market ignore the influence of geopolitical factors

Saudi-led multinational coalition spokesman Turki issued a statement condemning the actions of the Houthi armed forces on the 29th and said that in the context of global solidarity against the new crown pneumonia epidemic, such hostilities showed that the Houthi armed forces did not really accept the ceasefire initiative and also reflected that This is due to the seriousness of failing to reach a comprehensive political solution with the Yemeni government.

A spokesman for Riyadh’s civil defense department Hamadi issued a statement on the 29th that after the Saudi air defense forces successfully intercepted a missile over Riyadh on the evening of 28th, some missile fragments fell into the residential area, causing minor injuries to two civilians. Quickly arrived at the scene for processing.

In response to the new crown pneumonia epidemic, Houthi armed forces and multinational coalition forces agreed to respond to the Global Ceasefire Initiative issued by UN Secretary-General Guterres on the 25th, but the two sides on the 27th pointed to each other for launching attacks and sabotaging the ceasefire.

As demand anxiety continues to dominate, geopolitical conditions have less and less influence on oil prices. At the beginning of 2020, after the US assassination of Khashoggi caused Iran’s revenge, the international oil price once surged, but it continued to decline in the following few trading days and fell below the level before the geo-event. The same situation also occurred in September 2019 When the Saudi oilfield was attacked in the middle.

Saudi and Russian price wars show no signs of abating

The ongoing price war between Saudi Arabia and Russia has made the oil-producing countries miserable, and they continue to urge a new production agreement to curb the market’s defeat.

Mohamad Arkab, Minister of Energy of Algeria, is the rotating presidency of OPEC this year. He has been trying to persuade Saudi Arabia to consider alternatives.

However, as Saudi Arabia has so far steadfastly planned to increase production from April, the prospect of reaching an agreement still seems slim.

After Iraq ’s call for an emergency OPEC meeting failed, Al Qabu ’s latest strategy is to call a representative-level meeting of the organization ’s economic committee board.

“The purpose of the meeting was to assess current market conditions and near-term prospects, explore various situations, and exchange views on ways to stabilize the oil market,” Alkabu wrote in a letter to OPEC Secretary-General Mohamed Barkindo.

He asked Barkindo to organize a representative-level meeting of the board of the OPEC Economic Committee by April 10 and prepare a report on the short- and medium-term outlook for the oil market for review by ministers.

Neither Barkin could comment, nor could Saudi Energy officials.

The Saudi official news agency reported on Friday that Saudi Energy Minister Prince Abdul Aziz Bin Salman and Russian Foreign Minister Alexander Novak have not held any discussions on a joint agreement to balance the oil market. Shows that the price war is temporarily unsolved.

An OPEC representative, who asked not to be named, said market sentiment was difficult to absorb the upcoming surge in supply.

Stephen Brennock, an analyst at brokerage firm PVM Associates, said the oil market “is facing serious oversupply. Ending the price war makes financial sense, but it seems likely that both sides will stick to current practices in the short term. “” In short, the return to the era of price-supportive production cuts is far away. “

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