Oil Prices Up Marginally, But Trafigura Worries That Global Demand Will Fall By 10 Million BPD

On the other hand, CNBC thinks less demand will reduce the surplus problem: File Image/PixaBay

After a disastrous week of trading, crude prices on Friday increased minimally but not nearly enough to avoid incurring the worst weekly losses since 2008; however, at least one media outlet noted that the source of the selloffs - the coronavirus pandemic - may provide a substantial silver lining.

Brent rose 82 cents to $34.04 per barrel; for the week, Brent was set to fall around 24 percent, the biggest weekly decline since December 2008 when it fell nearly 26 percent.

West Texas Intermediate rose 23 cents to settle at $31.73 per barrel; for the week the benchmark fell more than 22 percent.

Michael McCarthy, chief market strategist at CMC Markets, remarked, "It's been a very rough week and so it's not impossible people are locking in ahead of the weekend."

Not helping matters any is the crude price war instigated earlier this week by Saudi Arabia against Russia; Goldman Sachs estimated that a flood of low-priced oil from the kingdom will contribute to a record high oil surplus of 6 million barrels per day (bpd) by April, and this figure will likely increase as Russia plans to boost output starting that month.

Another development linked to the coronavirus and reported on Friday is U.S. shale producers are "likely less well hedged than the market realizes," according to Michael Tran, managing director of energy strategy at RBC Capital Markets.

About 43 percent of 2020's oil production was hedged as of the end of the fourth quarter, but that percentage is not fully covered with current prices at three-year lows; plus, with just 2 percent of production for 2021 having been hedged, companies may likely not be able to lock in prices that will guarantee profits given their costs.

More gloomy news on Friday was delivered by Saad Rahim, chief economist at Trafigura Group, who speculated that oil demand "could soon be contracting by close to 10 million barrels a day, with perhaps more to come.

"We haven't seen a demand event like this in history."

Friday wasn't all bad news, however: after weeks of contributing to the public alarm over the coronavirus via coverage that hyped its potential impact and minimized its relatively mild attributes,  CNBC conceded that "the [crude] price slump may be doing the work needed to reduce supply: energy companies in the U.S., the world biggest crude producer, are preparing to cut investment and drilling plans because of the plunging prices."

Also, while the Energy Information Administration also cut its demand growth estimates, it still sees consumption rising by 370,000 bpd.

If nothing else, the conflicting opinions on Friday about the fate of the market suggest once again that in the commodities field at least, the forecasting of learned analysts is almost always wrong, with the outcomes rarely as severe as their imaginations have led them to believe.