The oil price war and impact of COVID-19 has hit the US fracking sector like a sledgehammer last week as the number of active oil rigs slumped by 40 or 8% in a week.
It was one of the largest weekly falls ever recorded and came a week after the number fell by 19. The 59 fall in a fortnight is close to 10%.
“We will continue to see rigs plummet and should break below 500 in May or June,” James Williams, energy economist at WTRG Economics, told MarketWatch.com
“How low depends on how long the virus continues to impact the economy and whether OPEC gets together with Russia. Both will be necessary for a real recovery since crude stocks are building worldwide.”
The prime cause of oil’s woes is the price war between Saudi Arabia and Russia (and the US fracking sector) continued to drag on.
Kirill Dmitriev, head of Russia’s sovereign wealth fund told Reuters on Friday that a new OPEC+ deal might be possible if other countries join in. He said Russia has been in contact with Saudi Arabia and other countries.
The OPEC plus production cap is due to end on Wednesday and from then on it will be a free for all – a prospect that has seen oil prices halve in a matter of weeks.
Ahead of that deadline oil futures finished lower on Friday, as a fears of a surge in surplus oil and a huge drop in global demand sent prices down for a fifth straight week in a row.
That was even as President Donald Trump signed a $US2 trillion stimulus/support bill aimed at easing the economic hardship caused by the COVID-19.
For oil, “the focus continues to rest on the demand side of the market, with global demand expected to extend its record decline in the weeks ahead as a growing number of countries implement lockdown measures,” said Robbie Fraser, senior commodity analyst at Schneider Electric.
“Until demand begins to recover, any negotiations between Saudi Arabia and Russia to restore” the production cuts by the Organization of the Petroleum Exporting Countries and its allies, “or continued efforts by Saudi Arabia to flood the market, will look relatively unremarkable compared to the scale of demand loss,” Fraser said in a daily note. The current OPEC+ output cuts expire at the end of this month.
West Texas Intermediate crude for May delivery fell $US1.09, or 4.8%, to settle at $US21.51 a barrel in New York, with prices for the front-month contract ending 5% lower for the week, according to FactSet data.
In Europe, May Brent crude, the global marker, fell $US1.41, or nearly 5.4%, to $US24.93 a barrel, for a weekly loss of 7.6%.
On Friday, Bloomberg News said, Saudi Arabia, hasn’t had any contacts with Moscow about oil production cuts or maintaining the OPEC+ alliance.
Month to date, WTI and Brent prices have each lost roughly 50%.
