Oil prices hit the bottom level for the first time in 1999, as the COVID-19 hits the demand, the market data showed - Photo: OPEC Secretariat.

JAKARTA (TheInsiderStories) Oil prices hit the bottom level for the first time in 1999, as the COVID-19 hits the demand, the market data showed. On Monday, West Texas Index (WTI) fell 14 percent to US$15.65 a barrel, while Brent oil was slightly weaker 0.8 percent to $27.87 per barrel.

Earlier this month, Organization Petroleum Export Companies and its allies (OPEC+) agreed a record deal to slash global output by about 10 percent. But, the policy not helped the market confidence on the future oil market.

Concern continues to mount that storage facilities in the United States (US) will run out of capacity, with stockpiles at Cushing rising almost 50 percent since the early March. Saudi Aramco announcement on Friday, that it will provide its customers with 8.5 million barrels per day (bpd) starting May 1st also not give an energy to the market.

Last week, US’ Energy Information Administration (EIA) has lowered its 2020 forecast for WTI price to $29.34 per barrel, down 23 percent compared March forecast. It also cut its Brent crude price forecast by nearly 24 percent to $33.04 for 2020.

This year, EIA expects American crude output of 11.76 million bpd, dropped 9.5 percent from the previous view. It also forecast for 2021 the production down nearly 13 percent at 11.03 million bpd.

EIA assumes that the sharp reductions in global crude oil prices, which occurred during March 2020 as a result of COVID-19, will persist through the second quarter before prices begin gradually increasing through the end of the forecast.

Its expects that considerable decreases in liquid fuel consumption will result from containment measures and economic disruptions related to the virus, which will affect US refinery activity and, consequently, demand for crude oil. However, crude oil supply will increase in the short term as a result of agreed production cuts among OPEC+ that were suspended.

EIA rated that these two factors will keep global crude oil prices at multi-year low averages through the first half of 2020. Only gradual increases in crude oil prices are expected through all of 2020 as these factors persist, which could lead to record levels of expected global oil inventory builds in the first half of 2020.

The agency expects that COVID-19 will drive sharp reductions in crude oil prices and US liquid fuels demand during the second quarter of 2020, which will significantly reduce prices for gasoline and diesel fuel during the same period. Significant reductions in personal travel, both for normal commuting and vacation travel typical for the summer driving season, will decrease gasoline prices more dramatically than diesel fuel prices.

It said, the shock to gasoline demand and EIA’ corresponding expectation of near-term oversupply has been reflected in forecast US refinery wholesale margins. In late March 2020, refinery wholesale margins for gasoline fell to near-zero levels in some regions, while diesel fuel margins remained relatively strong.

EIA expects that stronger refinery wholesale margins for diesel fuel relative to gasoline will not only encourage refiners to maximize distillate production while reducing gasoline production, but in some cases, to idle some production units, which will drive refinery utilization rates to some of their lowest levels since the 2008 recession.

As a result, EIA forecasts that US gasoline retail prices will reach some of their lowest levels in 20 years in the second quarter of 2020, before gradually increasing throughout the year as travel and business activity slowly recovers. Comparatively, diesel fuel prices only see minor decreases during the forecast period as increased demand for diesel fuel to meet expected near-term increases in long haul trucking and last-mile delivery activity.

Written by Staff Editor, Email: theinsiderstories@gmail.com