Prices Down Further as The Market Spooked on Virus Fear

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byEnverus

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US crude oil stocks posted a decrease of 0.4 MMBbl. Gasoline inventories increased 1.7 MMBbl and distillate inventories decreased 1.2 MMBbl. Yesterday afternoon, API reported a crude oil build of 1.6 MMBbl alongside gasoline and distillate builds of 4.5 MMBbl and 3.5 MMBbl, respectively. Analysts, to the contrary, were expecting a crude oil draw of 1.0 MMBbl. Total petroleum inventories posted a decrease of 1.9 MMBbl.

US crude oil production remained unchanged last week, per EIA. Crude oil imports were down 0.12 MMBbl/d last week to an average of 6.4 MMBbl/d. Refinery inputs averaged 16.9 MMBbl/d (0.12 MMBbl/d less than last week’s average).

The spread of coronavirus outside the Chinese city of Wuhan and the first confirmed case in the United States sent crude oil futures sharply lower Wednesday morning, with March WTI eventually settling at $56.74/bbl. Concerns about global refined product demand in the first quarter were already proving to be a damper on market sentiment following the market’s euphoric response to last week’s signing of the US-China interim trade deal. Now markets are assessing the likelihood of a major slowdown in global air travel and its potential impact on demand for jet fuel. Similar events have hammered jet demand in the past, such as the SARS outbreak in 2002-2003 and the grounding of flights over Europe during the 2010 eruptions of the Eyjafjallajökull volcano in Iceland. Additionally, by locking down transport out of Wuhan (a city of 11 million people) and cancelling major Lunar New Year celebrations across the country, China’s effort to control the spread of the virus is also likely to impact the country’s overall demand for motor fuels. On top of all this, preliminary inventory data from the API showing builds in crude and product stocks sent March WTI futures briefly below $55/bbl Thursday morning. The EIA’s report confirmed the builds in gasoline but was not as bearish for crude and distillates.

Petroleum Stocks Chart

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