Crude Tumbles 8% as U.S. Stimulus Ignores Trump Plan to Top up Oil Reserves

By Barani Krishnan 

Investing.com - Crude prices fell almost 8% on Thursday after the $2 trillion U.S. Covid-19 fiscal rescue left out the Trump administration’s plan to top up the country’s oil reserves in a bid to throw a lifeline to shale drillers.

Also weighing on crude were record jobless claims filed by Americans and signs of no ceasefire yet in the crude production-and-price-war between Saudi Arabia and Russia.

West Texas Intermediate, the New York-traded benchmark for U.S. crude prices, settled down $1.89, or 7.7%, at $22.60 per barrel.

Brent, the London-traded global benchmark for crude, slid 89 cents, or 3.3%, at $26.50. 

U.S. Energy Secretary Dan Brouillette said last week the Trump administration has asked Congress for $3 billion to buy 77 million barrels to top up the Strategic Petroleum Reserve. Under the plan, 30 million barrels was to have been purchased immediately and the balance between 60 and 90 days. But the stimulus passed by the Senate did not allocate any funding for SPR crude purchases. 

Goldman Sachs (NYSE:GS) forecast that global oil demand, which stood at around 100 million barrels per day last year, will fall by 10.5 million bpd in March and 18.7 million bpd in April. For the year, oil consumption is expected to contract by around 4.25 million bpd, the Wall Street bank said.

Further depressing oil prices was data from the Labor Department, showing that a record 3.28 million Americans have filed for first-time unemployment benefits — a figure higher than even Chicago's population of 2.7 million. That was a signal that mending the labor market could take a lot longer than anything afforded by the stimulus.

Oil was also hit by Saudi Arabia’s decision not to include any discussion or support measures for oil on the G20 virtual meeting it hosted on Thursday. The exclusion indicated that the kingdom’s production-and-price war with Russia would continue to the detriment of U.S. shale drillers, despite Washington’s plea this week for a ceasefire and return to production cuts.

“There is no doubt that the Russian and Saudi price war destroyed any shred of credibility they had as the global stabilizer of oil,” said Phil Flynn, analyst at Price Futures Group in Chicago.

“Instead of acting to soften the economic blow from record demand destruction from the coronavirus, they let their egos allow the oil market to cause the world more economic pain. They used this crisis to gain more power and market share at the expense of the world community that is facing deaths and economic destruction from this virus. Instead of stabilizing the market, they created a situation where oil market volatility is at an all-time high.”

Separately, Reuters reported that Saudi Arabia was struggling to find customers for its extra oil as demand plummets due to the coronavirus and as freight rates surge.

Royal Dutch Shell (LON:RDSa) and U.S. refiners were taking less Saudi crude. Finland’s Neste was not taking any in April. Indian refiners had sought delayed deliveries and Polish refiners were easing up on purchases, the report said.

Saudi plans to hike its production from 9.7 million bpd to 12.3 million bpd will kick in five days, IBW Daily Oil Brief noted.

“Now the actual physical product from the Saudis will hit the market. This is what you call the second Kiss Cool-effect — the first being the freshening effect of mint candy, and the second being something unexpected,” said Igor Windisch of IBW.

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