Oil slumps as surge in USA coronavirus cases clouds demand outlook

Andrew Cummings
June 28, 2020

The US has seen a record number of new cases, with a wave across the Sun Belt casting doubt over prospects for an oil-demand recovery.

The prospect of increased US crude production also kept a lid on gains on Friday.

However, sentiment has been dented by fears a spike in COVID-19 infections in southern U.S. states could stall the demand recovery, especially as some of those states such Florida and Texas, are among the biggest gasoline consumers.

Purchases of about 23 million barrels of American crude oil for loading in May were sent to domestic refineries and only 12 million barrels are en route to China this month, data compiled by Bloomberg show.

Average crude oil price realisation during January-March (Q4 FY 2019-20) was $52.18 per barrel, which was lower by 15.51 per cent as compared to a price realisation of $61.76 a barrel during Q4 FY2018-19. "Currently, those barrels are underpinned by the USA benchmark WTI, reflecting crude delivered at Cushing, Oklahoma, some 500 miles (800 km) away".

Before the renewed outbreak in Beijing that has now spread to neighboring provinces, buyers in China were snapping up cheap USA oil with crude processing at local refineries climbing even higher last month than before the pandemic began. Currently, crude grades traded from the Gulf reflect prices for oil at storage terminals and are quoted as a premium or discount to WTI, rather than as an outright price. Well, the natural gas market can do it to you!

India is on its way to make its biggest savings in the oil import bill this year with Covid-19 related disruptions and sluggish demand conditions squeezing down the country's crude payments to a fourth of previous years' level in the first two months of current fiscal. In early trading, the NYMEX contract dipped 11.5 cents to around $1.48 per one million British thermal units (MMBtu) after the EIA reported a massive 120 billion cubic feet injection to gas storage - the largest one-week addition to stocks in almost 14 months, EIA data shows.

"Overall, it seems that today the market is overly enthusiastic and ignores the risk that is attached to new record COVID-19 cases", Rystad said.

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