Petroleum Complex Tumbles as Coronavirus Measures Slash Demand
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Petroleum Complex Tumbles as Coronavirus Measures Slash Demand

S&P Global Platts FACTBOX: Petroleum Complex Tumbles as Coronavirus Measures Slash Demand

The petroleum complex continued to tumble Monday, with Dated Brent falling below $30/b, and some gasoline crack spreads turning negative, as measures are taken to slow the spread of the coronavirus have drastically slowed demand.

With government officials around the world increasingly ordering people to remain at home and also closing borders, gasoline and jet fuel consumption have been especially hard hit.

While the rate of growth of the coronavirus has slowed in China, cases outside of the country continue to grow. According to Johns Hopkins University, there were 179,165 confirmed cases of the virus Monday, with 81,032 of those in China.

"The simultaneous shutting down of countries in Europe, the US, and parts of Asia will have a very profound effect on global demand. April demand will be much worse than March; and March than February," said Claudio Galimberti, head of demand, refining and agriculture analytics for S&P Global Platts.

S&P Global Platts assessed Dated Brent at $27.945/b Monday, the first time the benchmark has fallen below $30/b since February 11, 2016.

"This is painful. But there is still more downside to oil prices," said Shin Kim, Platts head of supply and production analytics.

While demand is getting hammered, crude supply is set to increase, following the failure of OPEC and its allies to come to a production-cut agreement, which subsequently led to a battle for market share by Saudi Arabia and Russia.

There are currently few signs that negotiators might come to an agreement soon.

"The collapse of OPEC+ suggests that over the medium term that the supply side alone could warrant further selling pressure for Brent crude to test $20 level," said OANDA analyst Edward Moya.


**West Texas Intermediate crude was assessed by S&P Global Platts at $28.70/b Friday, down roughly 51% from January 20, when commodities markets first began reacting to the coronavirus.

**Crude futures have moved into steep contango, which should encourage storage increases, with the NYMEX front-month contract closing Monday at a $6.33/b discount to the 12th-month contract.

**The Singapore jet crack spread against Brent ended Monday at $3.77/b, down from $11.34/b January 20.

**The Rotterdam jet fuel crack against Brent ended Monday at $5.46/b, down from $14.17/b January 20.

**The New York Harbor jet crack against Brent ended Monday at $4.66/b, down from $14.19/b January 20.

**The May NYMEX RBOB crack spread vs. ICE Brent ended Monday at around 29 cents/b, down from $4.52/b Friday, and $15.50/b one month ago.

**The June RBOB crack vs. ICE Brent ended at around minus 30 cents/b, and the July crack at minus 58 cents/b.

**The Asian gasoline market deepened into contango Monday, with the April/May and May/June swap spreads assessed at minus 69 cents/b and minus $1.00/b, respectively.

**The May NYMEX ULSD crack ended Monday at around $14.28/b, holding up relative to RBOB on confidence that industrial demand would not suffer the same fate as driving demand.

**VLCC tanker rates from the Persian Gulf to China averaged $47.26/mt for the week ended March 13, compared with the $24.22/mt the week earlier, as between 70 and 80 fixtures were seen in the week to ship lower-priced crude from the Middle East.


**With Saudi Arabia and Russia in a pricing war to flood the market with cheap crude, the crude contango has widened, encouraging global inventory builds.

**Over the next few months, S&P Global Platts Analytics sees global "massive" crude stock builds of 500 million barrels in its best-case scenario, compared with the 1 billion-barrel build in its worst-case scenario, relative to end-February levels.

**Auction platform Matrix Markets will offer nearly five times the amount of storage it had originally planned to put up for sale this week at the Cushing, Oklahoma, storage hub, representing 11.85 million barrels of storage, the company said Monday.

**US President Donald Trump announced the US government would buy up to 77 million barrels of crude for the Strategic Petroleum Reserve, but with maximum fill, rates said to be between 200,000 b/d and 785,000 b/d, it could take more than a year to fully fill the reserve.

**The flood of low-priced crude on the market has closed the spot export arbitrage for US crudes, with Platts Analytics calculations showing the WTI MEH arbitrage shut to Northwest Europe, Northeast Asia, and Singapore.

**US shale is particularly exposed to lower oil prices. Under a worst-case average WTI price of $35/b for 2020, US crude production would drop to 9.75 million b/d in 2020 on the year, from a current reference case of 12.95 million b/d and $54/b WTI, according to S&P Global Platts Analytics, a loss of 3.2 million b/d. That would result in the first yearly oil output decrease since 2016.

**Saudi Aramco will pump at its maximum 12 million b/d crude production capacity and draw 300,000 b/d from storage in April, under its plan to supply the market with 12.3 million b/d in the month, CEO Amin Nasser said Monday.

**Future months' supply was yet to be determined, but Nasser said the company would be able to maintain production at its maximum capacity for a year without any further investment.

**Some of the world's biggest airlines are slashing more than 70% of their flights for the coming months, and jet fuel demand, which accounts for almost 8% of total oil demand, is taking an unprecedented hit.

**The International Airlines Group, which includes British Airways, Vueling and Iberia, announced Monday that it plans to reduce capacity by at least 75% compared to the same period in 2019 for both April and May.

**According to the International Air Transport Association, over "185,000 passenger flights have been canceled since the end of January in response to government travel restrictions."


**A growing number of oil companies, primarily in the US, have announced plans to slash capital budgets, drilling rigs, activity levels, and production growth, in response to lower prices.

**Pioneer Natural Resources will slash its capital spending by 45% and pull half of all its drilling rigs operating in West Texas' Permian Basin, the company said Monday. Pioneer is arguably taking the strongest measures yet. Most other shale oil producers are slicing their budgets by closer to 30%, including other big players such as Occidental Petroleum, EOG Resources, and Noble Energy.

**Saudi Aramco, in its first earnings call as a publicly-traded company, said it has downgraded its 2020 CAPEX spending to $25 billion-$30 billion, from previous guidance of $35 billion-$40 billion, due to the impact of the coronavirus pandemic.

**Brazilian independent oil and natural gas producer Enauta will cut its investment spending in 2020, reducing the size of the definitive production system at the Atlanta Field and pushing equipment purchases into 2021 amid collapsing oil prices and the coronavirus outbreak.

**A plunge in prices has slashed the profit potential for oil production in Argentina, raising concerns that a cutback in investment could stymie the development of Vaca Muerta, its biggest shale play and one of the largest in the world. In response, the federal government is studying measures to sustain production.

**With US crude exports expected to fall, most of the nearly 10 offshore crude export projects initially proposed in the Gulf of Mexico will likely not be built. Port of Corpus Christi CEO Sean Strawbridge only sees two of them coming to fruition: Bluewater and the SPOT terminal offshore of Houston that is led by Enterprise Products Partners and Enbridge.

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