Oil prices on Friday posted their biggest week of losses since the 2008 global financial crisis, rocked by the coronavirus outbreak and efforts by top exporter Saudi Arabia and its allies to flood the market with record levels of supply.
The rare combination of severe shocks to both supply and demand has caused the crude market to collapse as producers around the world steel themselves for an unexpected glut of oil in coming weeks.
“It’s a problem of an oil price war in the middle of a constricting market when the walls are closing in,” U.S. energy historian Daniel Yergin said.
The coronavirus sparked panic selling across markets for the bulk of the week. The virus has infected at least 138,000 people worldwide and killed more than 5,000, disrupting business, markets and daily life.
Major oil producers were pumping more crude into the market as demand collapses. Saudi Arabia has chartered more than 30 crude supertankers to export oil in coming weeks, specifically targeting big refiners of Russian oil in Europe and Asia, in an escalation of its fight with Moscow for market share.
Goldman Sachs said it now expected a record oil surplus of six million barrels per day (bpd) by April, in a global market that usually consumes about 100 million bpd.
On Friday, prices were higher, rebounding after the United States and other nations signalled plans to support weakening economies. But Brent crude LCOc1 dropped 25% on the week, the biggest weekly fall since the 2008 global financial crisis. On Friday, Brent rose 63 cents to settle at $33.85 a barrel.
U.S. West Texas Intermediate (WTI) crude CLc1 futures fell about 23% on the week, their biggest percentage decline since 2008. WTI rose 23 cents to settle at $31.73 a barrel, after earlier gaining to $33.87 a gallon.
Hopes for a U.S. stimulus package that could ease an economic shock from the coronavirus provided some support to the oil and stock markets on Friday.
“There’s hope that all the stimulus will stabilize the economy and offset some of the concerns about weaker demand and keep parts of the economy strong enough to support oil prices,” said Phil Flynn, analyst at Price Futures Group in Chicago.
Saudi Arabia, the world’s largest exporter, and the United Arab Emirates offered more oil to customers after OPEC’s talks with Russia and others on supply restraint collapsed last week.
Russia, the world’s second-largest producer, has shown no interest in agreeing to further output curbs with the Organization of the Petroleum Exporting Countries.
Russian oil producers met Energy Minister Alexander Novak on Thursday but did not discuss a return to the deal. The head of Gazprom Neft said it planned to hike production in April, following the talks.
Analysts slashed their forecasts of Brent crude prices to $42 a barrel on average in 2020, compared with the $60.63 consensus in a February poll.
But the price slump may reduce some supply, by forcing out more costly producers.
Energy companies in the United States, which has surged to become the world’s biggest crude producer because of a boom in pricier shale oil, are preparing to cut investment and drilling plans due to plunging prices.
The U.S. oil drilling rig count rose for a second week in a row despite a massive drop in both oil and natural gas prices this week and expectations from many analysts that the number of rigs will fall as producers deepen spending cuts.
Companies added one oil rig in the week to March 13, bringing the total count to 683, their highest since December, energy services firm Baker Hughes Co BRK.N said on Friday. RIG-OL-USA-BHI