(Bloomberg) — Oil resumed its slide alongside equities after Saudi Arabia said it would raise its production capacity and the World Health Organization declared the coronavirus a pandemic.
Futures declined 4% in New York. The battle for market share intensified as Saudi Aramco announced plans to boost its oil production capacity to 13 million barrels a day and Abu Dhabi National Oil Co. vowed to pump as much as possible next month. Meanwhile, the World Health Organization declared the virus a pandemic sending the Dow Jones Industrial Average into a bear market, ending the longest bull run in the history of American equities.
The oil market’s bearishness was reflected in the nearest timespread for the global Brent benchmark which sank deeper into a contango structure, signaling oversupply. The marker is at its weakest since 2016, creating incentive for traders to book tankers to store oil they can sell later at a profit.
“The challenge for oil market at large is that OPEC has gone back to its plan of managing its own market share rather than stabilizing prices,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle. “The big question is who blinks first. We also don’t know what’s going to happen with this virus. The market’s fear of diminished demand growth is very real.”
The disintegration of the coalition between OPEC and allied producers last week rattled an already fragile market that is in the midst of grappling with the coronavirus wreaking havoc on global economies. The crisis has prompted global policy makers to either deliver or signal stimulus measures to stem the economic blow from the outbreak.
In the U.S., Republican senators said they are considering options for ways the federal government can aid oil drillers including purchasing low-priced oil for the Strategic Petroleum Reserve, the nation’s emergency cache of hundreds of millions of barrels of oil, according to Senator Lisa Murkowski.
Amid the collapse in prices and the coronavirus obliterating global demand, the Energy Information Administration cut its demand outlook for petroleum and liquids fuel by 900,000 barrels for the first quarter. The Energy Department also said U.S. oil output will average 12.7 million barrels a day in 2021, marking the first year-on-year decline since 2016.
West Texas Intermediate crude for April delivery lost $1.38 to settle at $32.98 a barrel on the New York Mercantile Exchange.
Brent crude for May settlement fell 3.8%, or $1.43 cents, to settle at $35.79 a barrel on the London-based ICE Futures Europe exchange, putting its premium over WTI for the same contract at $2.40.
–With assistance from James Thornhill, Alex Longley, Grant Smith and Elizabeth Low.