Oil futures rebounded strongly on Thursday but were still set for the worst weekly rout in recent memory amid plunging demand from the coronavirus fallout and imminent surging supplies from Opec and Russia.
Despite the rise, the outlook remains extremely gloomy as countries around the world, including the US, impose travel bans and restrict movements of people and vehicles to fight the Covid-19 onslaught.
Brent crude was trading at around $35 per barrel in the late morning London session on Friday, up over 5%, while US West Texas Intermediate (WTI) crude also rose by more than 5% to trade at around $33.10 per barrel.
Both benchmarks are set to register weekly falls of over 20% — the biggest weekly decline since the 2008 financial crisis.
“It’s been a very rough week and so it’s not impossible people are locking in ahead of the weekend,” Michael McCarthy, chief market strategist at CMC Markets in Sydney, was quoted as saying by Reuters.
“I would also point out that, in the context of the recent moves, it’s not really a major move,” he added, noting that “volumes are terrible” and down significantly on average.
The oil market went into a tailspin on Monday after Saudi Arabia lined up plans for a massive increase of more than 20% in output to 12 million barrels a day as part of plans to punish Russia for refusing to join in new production curbs to defend revenues.
The United Arab Emirates and other Opec producers also unveiled output boosts. Russia responded to the Saudi move by announcing plans to hike production to safeguard its market share.
Saudi Arabia and the UAE are expected to fare better in a prolonged war over prices and market share thanks to their massive reserves and low-cost production base.
“The surge in low-cost production is signiﬁcantly larger than expected with the collapse in demand due to the coronavirus looking increasingly broad,” said Goldman Sachs, which now expects what it said would be a record high oil surplus of 6 million bpd by April.
Despite an imminent rise in global supplies, there are fears that the meltdown witnessed in the week will eventually lead to sharp output declines as companies move to rein in upstream investment.
US shale producers may be amongst early victims because many of their fields may not be able to cope with low prices in the long run.