Opening Prices:
WTI is down 23c to $51.33/Bbl, and Brent is down 62c to $56.03/Bbl.
Natural gas is up 2.6c to $1.867/MMBtu.
Closing Prices:
WTI prompt month (MAR 20) was down $1.45 on the day, to settle at $50.11/Bbl.
NG prompt month (MAR 20) was down $0.022 on the day, to settle at $1.819/MMBtu.
Investing.com - Oil prices pushed lower Monday, continuing the recent weakness in the wake of the virus outbreak in China, but losses were limited by reports that some major oil producers were planning deeper production cuts to bring the market back into balance.
These hefty losses, largely on the back of a predicted drop in demand from China, the world’s largest crude importer, have caused unease with the governments of many of the major oil producing nations.
The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, are consequently considering a further cut in their oil output of 500,000 barrels per day, Reuters reported, citing sources. The group is considering holding a ministerial meeting on Feb. 14-15, Reuters said, earlier than the current schedule for a meeting in March.
Additionally the Wall Street Journal reported Monday that Saudi Arabia is pushing for a major, short-term oil production cut, citing OPEC officials.
Still, the overall sentiment in the oil market remains weak.
The number of deaths associated with the virus continues to rise, reaching 361 with 17,205 confirmed cases, as of early Monday, while most Chinese industries are likely to be shut until Feb. 10, at the earliest.
“The coronavirus could potentially impact the annual level of world trade in 2020, as it's not certain that factories and logistics will be able to catch up and fully compensate for earlier delays, given the limited capacity,” said analysts at ING in a research note. “If they cannot fully recuperate, global trade growth in 2020 will suffer.”
Signs of the slowdown in demand are already visible, as China's Sinopec Corp, Asia's largest refiner, said it would cut refinery output this month by about 600,000 barrels a day, roughly 12% of the average daily output last year, Bloomberg reported Monday.
Chinese oil demand has dropped by about three million barrels a day, or 20% of total consumption, Bloomberg reported, citing people with inside knowledge of the country’s energy industry. It cited data from research firm Kpler showing that the country's rolling weekly average oil imports had fallen to only 8 million barrels a day from 13 million b/d as recently as Jan.14.
Oil & Gas Prices - Feb 3
Oil & Gas Prices - Feb 3
Last edited by dan_s on Mon Feb 03, 2020 6:16 pm, edited 2 times in total.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - Feb 3
Comments below are from JPMorgan Oil Market Weekly Report
> Brent prices dipped below $60/bbl for the first time since early Nov’19 as fears that the new coronavirus was spreading rapidly gripped markets.
> The price swing of $5/bbl over a week was in line with our estimated price shock (see Oil Market Weekly, Jan 22), as markets appeared to be pricing a demand shock equivalent to the SARS outbreak of 2003.
> Although the potential demand shock from the virus could trim global oil demand growth by almost 300 kbd in 1Q20 and up to 600 kbd in 2Q20 versus our base case scenario, existing supply-side disruptions and the prospect of deeper cuts or an extension of the supply deal by OPEC+ will limit the impact to oil balances.
> We maintain our 1Q20 ($67/bbl) and 2020 ($64.5/bbl) average Brent price forecasts but note considerable risks to our price forecast because of market fears and have turned risk bias negative.
Coronavirus impact on oil demand
In response to concerns over an escalation in the coronavirus, Brent has slid more than $5/bbl in the past week. As highlighted by our oil strategists in their last weekly note (see Oil markets continue to dismiss geopolitical supply risks while a new threat to demand growth emerges by Deshpande & Begg from Jan 22), a price shock of at least $5-6/bbl (in the absence of any broader global economic slowdown) over a quarter could be expected if the latest health scare develops into a SARS style epidemic. As the oil market appears to be pricing in a crisis akin to SARS, we have estimated the potential impact to oil demand growth during 1H20 in a risk case scenario.
Emergency measures, including travel restrictions and quarantine protocols, have been stepped, as the number of cases and fatalities have continued to rise in China. As a result, we expect diesel, gasoline and jet-fuel consumption to be impacted not only in China but across the world, with a number of airlines cancelling flights. While also taking into account the unseasonably warm winter experienced in the western hemisphere, as demonstrated by the weak natural gas prices, we see a real risk to global oil demand growth during 1Q20. We estimate demand growth could slip from 1.15 mbd y/y to 0.87 mbd in our risk scenario due to the aforementioned factors. China’s oil demand growth alone could decline by almost 200 kbd in the quarter if the crisis worsens within this scenario.
Using SARS as a recent example of how such health crises can develop, we estimate global oil demand growth could decline by more than 50% q/q in 2Q20, driven by weaker oil consumption growth in APAC region. In this reasonable risk scenario, we see oil demand growth of just 500 kbd y/y in 2Q, with sharp declines noted predominantly in jet fuel and gasoil/diesel consumption. However, given our economists foresee a rebound in Chinese growth in 2Q (Coronavirus update: Revising China’s growth forecast by Zhu et al, from Jan 29), following a demand-side shock hitting the economy in 1Q, we see a lower probability for this risk scenario taking hold. Note the economic impact from the SARS epidemic largely subsided by the summer of 2003.
As indicated earlier, we are expecting a large proportion of the demand shock to be driven by China in this risk scenario, particularly with respect to jet fuel and gasoline. Almost 50% of the global loss in demand growth for diesel during 2Q will be accounted for by China, while we think there will consequential shocks to industrial demand from EM Asia economies linked to China’s supply chain. This will also affect gasoil consumption in the region. Air travel is likely to see most of the impact, with global jet fuel demand responsible for almost 130 kbd y/y growth in 2020 (base case), declining sharply within 1Q and 2Q, if the virus continues to progress at current rates. With travel restrictions in place and the threat of virus spreading globally, a few airlines have begun to cancel flights and change routes. British Airways has gone as far as suspending all flights to mainland China (Bloomberg) as of Jan 29.
We do note that on a percentage basis the shock to Chinese oil demand could result in the demand destruction of up to 800 kbd in 2Q20 if the SARS event was used as a template. However, we believe this is an unrealistic assumption given Chinese oil demand has been slowing quite rapidly in the past year owing to the US-China trade war, whereas oil demand growth was rising rapidly before and after SARS struck.
Oil supply disruptions to the rescue
However, the impact of a potential coronavirus epidemic on oil demand growth should be offset by numerous supply-side issues affecting the market, at least in terms of fundamentals. The Libyan outage on Jan 17-19 has resulted in the displacement of up to 900 kbd of crude oil supply from the physical market. In our risk case, we have assumed Libyan supply gradually recovers by Mar’20, helped by negotiations brokered by world powers. In our view, General Haftar is likely to lift the blockade to ports at some point given both parties in Libya need oil export revenues. Since 2017, during the time Libya recovered significant production capacity, the country has suffered numerous supply outages, most of which have been fairly short-lived. Together with minor disruptions in Iraq related to civil unrest and Iranian tensions, we actually see tighter balances in 1Q20 in our risk scenario (vs base case). This is in spite of higher output from Russia and potential positive growth revisions for US supply. At the same time, our 2Q20 balances look much weaker in the risk case scenario, leading to even higher stock builds. The risk of markets weakening significantly on the back of a demand shock has already led OPEC+ to consider an extension of current OPEC+ deal into 2Q20. However, the existing cuts may not be enough if Libyan supply was to return due to a swift resolution in the ongoing domestic crisis. Hence, any suggestion by OPEC+ that it is considering deeper supply cuts might help to arrest some of these risks.
> Brent prices dipped below $60/bbl for the first time since early Nov’19 as fears that the new coronavirus was spreading rapidly gripped markets.
> The price swing of $5/bbl over a week was in line with our estimated price shock (see Oil Market Weekly, Jan 22), as markets appeared to be pricing a demand shock equivalent to the SARS outbreak of 2003.
> Although the potential demand shock from the virus could trim global oil demand growth by almost 300 kbd in 1Q20 and up to 600 kbd in 2Q20 versus our base case scenario, existing supply-side disruptions and the prospect of deeper cuts or an extension of the supply deal by OPEC+ will limit the impact to oil balances.
> We maintain our 1Q20 ($67/bbl) and 2020 ($64.5/bbl) average Brent price forecasts but note considerable risks to our price forecast because of market fears and have turned risk bias negative.
Coronavirus impact on oil demand
In response to concerns over an escalation in the coronavirus, Brent has slid more than $5/bbl in the past week. As highlighted by our oil strategists in their last weekly note (see Oil markets continue to dismiss geopolitical supply risks while a new threat to demand growth emerges by Deshpande & Begg from Jan 22), a price shock of at least $5-6/bbl (in the absence of any broader global economic slowdown) over a quarter could be expected if the latest health scare develops into a SARS style epidemic. As the oil market appears to be pricing in a crisis akin to SARS, we have estimated the potential impact to oil demand growth during 1H20 in a risk case scenario.
Emergency measures, including travel restrictions and quarantine protocols, have been stepped, as the number of cases and fatalities have continued to rise in China. As a result, we expect diesel, gasoline and jet-fuel consumption to be impacted not only in China but across the world, with a number of airlines cancelling flights. While also taking into account the unseasonably warm winter experienced in the western hemisphere, as demonstrated by the weak natural gas prices, we see a real risk to global oil demand growth during 1Q20. We estimate demand growth could slip from 1.15 mbd y/y to 0.87 mbd in our risk scenario due to the aforementioned factors. China’s oil demand growth alone could decline by almost 200 kbd in the quarter if the crisis worsens within this scenario.
Using SARS as a recent example of how such health crises can develop, we estimate global oil demand growth could decline by more than 50% q/q in 2Q20, driven by weaker oil consumption growth in APAC region. In this reasonable risk scenario, we see oil demand growth of just 500 kbd y/y in 2Q, with sharp declines noted predominantly in jet fuel and gasoil/diesel consumption. However, given our economists foresee a rebound in Chinese growth in 2Q (Coronavirus update: Revising China’s growth forecast by Zhu et al, from Jan 29), following a demand-side shock hitting the economy in 1Q, we see a lower probability for this risk scenario taking hold. Note the economic impact from the SARS epidemic largely subsided by the summer of 2003.
As indicated earlier, we are expecting a large proportion of the demand shock to be driven by China in this risk scenario, particularly with respect to jet fuel and gasoline. Almost 50% of the global loss in demand growth for diesel during 2Q will be accounted for by China, while we think there will consequential shocks to industrial demand from EM Asia economies linked to China’s supply chain. This will also affect gasoil consumption in the region. Air travel is likely to see most of the impact, with global jet fuel demand responsible for almost 130 kbd y/y growth in 2020 (base case), declining sharply within 1Q and 2Q, if the virus continues to progress at current rates. With travel restrictions in place and the threat of virus spreading globally, a few airlines have begun to cancel flights and change routes. British Airways has gone as far as suspending all flights to mainland China (Bloomberg) as of Jan 29.
We do note that on a percentage basis the shock to Chinese oil demand could result in the demand destruction of up to 800 kbd in 2Q20 if the SARS event was used as a template. However, we believe this is an unrealistic assumption given Chinese oil demand has been slowing quite rapidly in the past year owing to the US-China trade war, whereas oil demand growth was rising rapidly before and after SARS struck.
Oil supply disruptions to the rescue
However, the impact of a potential coronavirus epidemic on oil demand growth should be offset by numerous supply-side issues affecting the market, at least in terms of fundamentals. The Libyan outage on Jan 17-19 has resulted in the displacement of up to 900 kbd of crude oil supply from the physical market. In our risk case, we have assumed Libyan supply gradually recovers by Mar’20, helped by negotiations brokered by world powers. In our view, General Haftar is likely to lift the blockade to ports at some point given both parties in Libya need oil export revenues. Since 2017, during the time Libya recovered significant production capacity, the country has suffered numerous supply outages, most of which have been fairly short-lived. Together with minor disruptions in Iraq related to civil unrest and Iranian tensions, we actually see tighter balances in 1Q20 in our risk scenario (vs base case). This is in spite of higher output from Russia and potential positive growth revisions for US supply. At the same time, our 2Q20 balances look much weaker in the risk case scenario, leading to even higher stock builds. The risk of markets weakening significantly on the back of a demand shock has already led OPEC+ to consider an extension of current OPEC+ deal into 2Q20. However, the existing cuts may not be enough if Libyan supply was to return due to a swift resolution in the ongoing domestic crisis. Hence, any suggestion by OPEC+ that it is considering deeper supply cuts might help to arrest some of these risks.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group