Why all eyes will be on the expiry of Brent oil futures this week

Analysts and investors have been wondering if the same will happen to Europe's Brent oil futures.

The expiry of the June contract for Brent oil futures in Europe on Thursday will possibly be the most watched event in oil markets for some time after the US benchmark plummeted below zero for the first time in history last week.

The coronavirus pandemic has killed oil demand as over four billion people are in lockdown and last week, ahead of its contract expiry, US West Texas Intermediate (WTI) futures crashed deep into negative territory making it a liability for anyone holding it.

Analysts and investors have been wondering if the same will happen to Europe's Brent oil futures, but most agree that while there are no technical obstacles for the contract going the same way, it is hard to see why it would.

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Brent is considered to be the international marker by the oil industry as it is linked to seaborne crude so has fewer storage limitations than WTI, which is settled against a major landlocked storage site in Oklahoma.

Brent is run by the Intercontinental Exchange (ICE) in Europe and other crudes are unofficially pegged to it, so there is more vested interest in keeping it stable.

Nevertheless, last week, ICE said it was ready to switch mathematical models, from Black-76 to Bachelier, to settle contracts at negative prices if needed.

Statsguru: Why crude oil went berserk last week and is it just a blip?

Oil traded at a negative price on a one-month West Texas Intermediate futures contract, but it didn't for successive months' futures contracts.

Last week, the quantity of oil in the global supply pipeline was so high that some traders were willing to pay anyone who promised on April 20 to lift oil a month later. Oil traded at a negative price on a one-month West Texas Intermediate (WTI) futures contract, but it didn’t for successive months’ futures contracts

But the blip nevertheless confirmed the oil shock that will play out in the near future due to lower demand post-Covid-19 menace. The world is known to oil shocks, and India bought oil at $16 on April 21, the lowest in almost five decades, due to depressed benchmark prices.

The magnitude of excess supply is visible in two key indicators. Developed countries have about 80 days of oil stocked with them, up 33 per cent from the normal of two months. Second, a whopping 100 million barrels of oil was present in the sea and ports (in-transit) at the end of March 2020, 50 per cent more than what it was six months ago, and possibly the highest ever.

shows the reason: Global body International Energy Agency has predicted that oil demand will fall by a staggering 25 per cent from 100 mb/day to 76 mb/day by April-June 2020.

The demand situation in India was visible in March data. The consumption of airline fuel, diesel, and petrol plummeted, and will be followed by a stronger plunge in April because of the lockdown. Though low oil prices generally give a revenue windfall to the Union government, the falling consumption is likely to dent fuel tax revenues for both the Centre and states

World's 2020 oil demand growth virtually eliminated over COVID-19: OPEC

OPEC reduced the growth in world demand for oil from 990,000 barrels per day to 60,000 bpd, a 93 per cent drop.

The Organization of Petroleum Exporting Countries (OPEC) has announced that there would be practically no increase in the worldwide consumption of crude oil in 2020 due to the coronavirus impact on the global economy.

In its monthly report published on Wednesday, OPEC reduced the growth in world demand for oil from 990,000 barrels per day to 60,000 bpd, a 93 per cent drop, Efe news reported.

It calculated that the volume of crude that the world will need from the 13 cartel partners will be reduced this year by 5.8 per cent - or 1.73 million bpd - compared with 2019 to 28.18 million bpd.

"Following a considerably weaker economic growth for 2H19 in Japan, Euro-zone and in India, the COVID-19 related developments necessitated a further downward revision of the 2020 GDP growth forecast to 2.4 per cent from 3.0 per cent forecast in the previous month. This compares to a 2019 GDP growth estimate of 2.9 per cent... Further downside risks to the world economy remains given the uncertainty regarding the magnitude of COVID-19 related impacts," said OPEC in the report.

The estimates were based on the "adverse effects" that the epidemic have already had on transportation and on the industrial use of fuel in China, as well as on petroleum consumption in other regions hit by the coronavirus, including Japan, South Korea, Europe and the Middle East.

At this point, OPEC calculates that this year the total demand for crude will not exceed, in contrast to its earlier estimates, the psychological barrier of 100 million bpd, but rather will remain at an average of 99.73 million bpd provided that the world recovers relatively quickly from the crisis surrounding the spread of the virus.

Oil bounces from multi-year lows as hopes of OPEC+ cut offset virus impact

US West Texas Intermediate crude hit a 14-month low of $43.32 a barrel, before recovering to $45.23, up 47 cents, or 1.1%

Oil prices pared losses after earlier hitting multi-year lows on Monday as hopes that a bigger than expected production cut from OPEC and stimulus from central banks could offset economic gloom from the coronavirus outbreak.

Brent crude was at $50.32 a barrel, up 65 cents, or 1.3%, by 0105 GMT, after earlier dropping to $48.40, the lowest since July 2017.

US West Texas Intermediate crude hit a 14-month low of $43.32 a barrel, before recovering to $45.23, up 47 cents, or 1.1%.

Flight cancellations and travel bans by countries worldwide sparked fears about the global economy, leading to the biggest weekly stock market rout since the 2008 financial crisis last week. China's factory activity also shrunk at the fastest pace ever in February, underscoring the colossal damage from the coronavirus outbreak on the world's second-largest economy.

"On the one hand, it's pretty negative on worldwide crude oil and product demand," said Lachlan Shaw, head of commodity research at the National Australia Bank.

On the other hand, there was news Saudi Arabia was pushing for a million barrels per day cut to be agreed this week, while central banks globally were increasingly signalling an appetite to intervene and support markets by cutting interest rates, he said.

"So it's a balance and it's going to be pretty volatile."

Several key members of the Organization of the Petroleum Exporting Countries (OPEC) are mulling an additional production cut of 1 million barrels per day, more than the 600,000 bpd proposed last month, on growing fears that the virus outbreak will hit oil demand badly.

OPEC and its allies including Russia, a grouping known as OPEC+, have already been curbing oil output by 1.7 million bpd under a deal that runs to the end of March.

"Current prices do not work for most of the OPEC+ group as they stand and Russia is not as price agnostic as it endeavours to seem," said Helima Croft global head of commodity strategy at RBC Capital Markets.

"We think Saudi Arabia will likely be able to rally the rest of the producers for a cut of at least 1+ million bpd."

Why India's upcoming general election is good news for the oil market

Election campaigning will boost fuel use in a nation where oil demand is already growing at the fastest pace in the world.

The largest democratic exercise on Earth is set to give the oil market a shot in the arm.

About 875 million Indians will go to polls over the next three months to elect their leader, dwarfing the 158 million Americans who registered to vote in the 2016 US residential elections. Before they vote, they’ll be courted by a slew of competing political parties -- a process that will boost fuel use in a nation where oil demand is already growing at the fastest pace in the world.

The lift will be provided by hordes of party faithful, who traverse teeming cities and remote villages across the world’s seventh-largest country in a campaigning frenzy before what’s expected to be a closely fought election. Their use of motorcycles and sports utility vehicles at a time when some refineries are closed for maintenance will support returns from making fuels in Asia over the next few months, according to a Bloomberg survey of traders who participate in the market.

“The election, which coincides with scheduled maintenance, should see India pull imports of gasoil and gasoline and this usually adds to bullish sentiment,” said WengInn Chin, a senior oil market analyst at Facts Global Energy in Singapore. In the lead up to the polls, the increased consumption is expected to increase gasoline and diesel demand by as much as 80,000 barrels a day, he said.

That will be in addition to the nation’s already growing demand for gasoline and diesel, consumption of which grew by about 75,000 barrels a day and 100,000 barrels a day, respectively, in January. Demand for liquefied petroleum gas is also surging, with state refiners seeking to import cargoes of the cooking fuel as the government tries to keep voter morale high by ensuring rural households are well supplied.

The profit from turning crude into diesel reached a two-month high late last month, and has climbed over 25 percent so far this year. Refinery maintenance will keep supplies tight in coming months, while the International Maritime Organization’s new rules on ship fuel next year will drive the fuel’s demand in the longer term. That’s set to keep the so-called crack at an average of $14.50 a barrel this month, according to the Bloomberg survey of traders.

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