OIL MARKET WEEK AHEAD: And You Thought it Couldn’t Get Worse!

At current prices both Saudi Arabia and Russia will struggle to balance their budgets...

Energy 4

Coronavirus is just getting its claws into Europe and is in the early stages of spreading in the US, so the week ahead will inevitably bring more disruptions on both sides of the Atlantic, from public events via trading to travel. 

Travel faces more disruptions
The shock decision to suspend flights between Europe and the US is about to take a heavy toll on the airline operators, but it could be just a warm up for what is to come now that Spain has declared a state of emergency because of the spread of COVID-19.

The number of coronavirus cases in Spain is currently rising the fastest in Europe, up over 1,100 in the last 24 hours, and the country has started locking down regions that have been the worst affected. At the time of writing, flights in and out of the country were still running normally but it is far from certain that this will be the case next week. The fallout of the suspensions is beginning to show. Norwegian Air is cancelling 4,000 flights until the end of May and cutting 50% of its staff; other airlines are likely to follow suit, particularly budget airlines operating on a very thin margin.

Coronavirus is also beginning to spread much faster in the Scandinavian countries and in Switzerland. In the week ahead, look for land transport across Europe to become affected as countries start bringing in more Italy-type restrictions that make any non-essential travel very difficult. 


US weekly oil stocks

In the US, governors of five US states have declared a state of emergency and although there have not yet been any restrictions on travel across the country, nor does a state of emergency imply that travel will stop, travel in and out of the more heavily affected towns and areas is beginning to ebb. Transport, be it cars, buses or planes, makes a total of almost 70% of the US crude oil demand and the slowdown in travel which will inevitably happen over the coming weeks will erode the already slightly weaker demand. Look out for EIA’s weekly petroleum market update due on Wednesday, particularly after the last update showed a far higher increase in US crude supplies than expected. They rose to 7.7m bbl against expectations of an increase of just 2.5m bbl.

Who will increase oil production in April?

There is no longer a simple answer to that question because reality has surpassed some of the scenarios major oil producers have based their production plans on at the start of March.

Yes, Saudi Arabia did say it will pump more oil and sell more oil to Asia from April, and yes, Russia did say that it could increase oil production by 200,000 barrels per day and yes, US shale producers had every intention of continuing to expand their output this spring. However, faced with the speedy decline in demand and a massive plunge in prices, reality might turn out completely different.

There is already evidence that a number of US shale producers are struggling to remain financially afloat, and they may not survive lower demand from drivers and the airline industry which is likely to last into May. Also, at current oil prices both Saudi Arabia and Russia will struggle to balance out their budgets so it will be a question of who can handle losses the longest.   

When 

What 

Why is is important

Monday 16 March 02.00

China Feb industrial production 

It will show how much damage industrial production suffered at the height of the coronavirus spread 

Tuesday 17 March 10.00

Germany ZEW survey 

Indicator of German business confidence 

Tuesday 17 March 13.15

US industrial production 

Dropped 0.3% in January 

Tuesday 17 March 21.30

API US weekly crude stocks

First glimpse into the demand trend in the US for week ending 13 March 

Wednesday 18 March 14.30

EIA weekly crude oil stocks 

Official crude oil data for week ending 13 March

Thursday 19 March 12.30

US initial jobless claim

Correlated to retail spending power 

Friday 20 March 01.30

China PBOC rate decision 

Indicative of how much economic support the central bank feels the country needs

Friday 20 March 17.00

Baker Hughes oil rig count

Indicative particularly now that some smaller scale producers are struggling 

Friday 20 March 

CFTC oil commitment of traders 

Money managers’ oil positions


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