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Oil futures edged lower Friday, as traders continued to balance optimism over a $2 trillion U.S. fiscal stimulus package against a huge drop in demand as result of the global COVID-19 pandemic.
West Texas Intermediate crude for May delivery CLK20, -0.97% was 3 cents, or 0.1%, at $22.63 a barrel on the New York Mercantile Exchange, while June Brent crude BRNM20, -1.33%, the global benchmark, fell 23 cents, or 0.7%, to $28.42 a barrel on ICE Europe.
“Unlike the financial markets, the oil market is apparently finding it difficult to look beyond the current crisis. Then again, this is only too easy to understand given the sheer extent of the oversupply,” said Eugen Weinberg, analyst at Commerzbank, in a note.
Oil prices have collapsed in March, with the near-lockdown of major economies in response to the COVID-19 pandemic slashing demand for crude. On top of that, a global fight for market share as a result of price war between Saudi Arabia and Russia is seen further flooding an oversupplied world with even more crude.
See: The world is running out of tanks to store oil as coronavirus and price war lead to flood of crude
Oil saw a three-day rebound come to an end Thursday, losing ground even as U.S. stocks soared in a move apparently sparked by relief over the U.S. Senate passage of a $2 trillion stimulus bill, which is expected to win House passage on Friday. Both Brent and WTI are on track for a March fall of more than 40%.
Analysts said oil will likely continue to struggle with the oversupply picture in the near term but contend the market could begin to rebalance once the pandemic subsides.
“We expect that these low prices will eventually rebalance the market through stronger demand growth as the COVID-19 recession recedes and rapidly falling U.S. shale production. The plummet in prices has already forced many large E&P companies to slash their capital budgets (and dividends) and we expect the same across the industry,” Gammel said.
“Ironically, this swift and severe price downturn could lay the groundwork for a significantly under-supplied market beyond 2021, albeit one with bloated inventories,” he said.
