The oil market in Q1 2020

• Date: 01 April 2020
• Published date: 01 April 2020
• DOI: http://doi.org/10.1111/oet.12768

EDITORIAL

The oil market in Q1 2020

Oil markets were rocked by external factors throughout

the quarter, above all by the impact of COVID-19 corona

virus, which cut demand and weakened prices from mid-

January onwards and contributed to the breakdown of

OPEC-plus supply restraint in early March. Prices ended

the quarter at their lowest level for decades.

Front month (March) Brent began 2020 at $66/bbl,

with sentiment relatively firm following the OPEC-plus

deal in December and signs of a pick-up in demand, as

well as reports of slowing US crude output growth.

Levels then jumped sharply at the end of the first week

to £68.6/bbl (a three-month high) following a rise in

Mideast tensions in the wake of the US assassination of

Iran's top military commander, General Qassim Sol-

eimani. There was additional upward pressure due to a

sharper than expected crude stock draw in the United

States, which brought inventories close to the 5-year

average.

Prices then softened in the middle of the second week

of January, as US President Trump appeared to play

down retaliatory missile attacks by Iran on US bases in

Iraq. This lowering of Mideast tension was accompanied

by a US stock build, adding to downward pressure on

prices, which dipped below $65/bbl by the end of

the week.

The bearish theme was maintained early the follow-

ing week as attention switched to oversupply concerns,

although there was then a slight uptick due to renewed

optimism over US/China trade, as Phase 1 of a new trade

deal was signed, including significant commitments from

China to import US oil and gas. There was further sup-

port at the end of the week from some bullish US eco-

nomic data and Senate approval of a new US-

Mexico-Canada trade agreement.

The third week began with another crude price rise as

it became apparent there would be a major disruption to

over 1 mn bpd of Libyan exports as a result of actions by

rebel General Haftar. But as the week progressed, the

first impact of the corona virus began to be felt, although

at this stage the concern was largely confined to its

impact on Chinese demand, and on jet fuel in particular

as flights were cancelled in East Asia. Oil prices fell, with

Brent losing about $5/bbl over the week to close at

$60.67/bbl on Friday 24th, while WTI dipped below $55/

bbl. The price weakness and another rise in US stocks

prompted the Saudi energy minister to indicate that the

likelihood of OPEC-plus extending its cuts beyond March

had increased.

The last week of January began with Brent under

$60/bbl and all eyes on the corona virus, with reports

suggesting it may have a wider impact than first

thought—the World Health Organization declared an

international emergency on 30th. By the end of January,

Brent had dropped below $57/bbl, with analysts

predicting an impact on global demand of at least

500 000 bpd.

February began with prices under pressure from

virus-related demand concerns, and Brent weakened

through the first couple of days of the month. At this

point the disease remained largely confined to China,

with the number of confirmed cases reaching 10 000

alongside about 215 deaths. Many airlines halted flights

to China, and stock markets saw moderate falls. Senti-

ment on 4 February was further weakened by a lack of

progress among OPEC and its allies over further output

cuts to compensate for the likely virus-related falls in

demand. OPEC was reportedly keen on an additional

output cut of 300 to 600 000 bpd, and there were also

moves to bring the next OPEC-plus meeting forward

from early March.

The 5th then saw an uptick as an OPEC-plus deal

looked more likely, but prices then fell further over fol-

lowing days, with Brent dipping to $53.27/bbl on

10 February. There was something of a rebound for a

couple of days from 11 February, as optimism grew that

the coronavirus outbreak in China was slowing based

on lower new infection figures after tough action from

the Chinese authorities, while OPEC raised its potential

additional supply cut to as much as 1 mn bpd. It also

became obvious that a blockade in Libya was severely

impacting oil exports, potentially taking as much as

1 mn bpd off the market. April Brent moved up to

$55.79/bbl on the 12th, while NYMEX WTI March

climbed to $51.17/bbl.

Prices continued to strengthen through the third

week, helped by growing confidence that the outbreak

had been contained in China, and levels peaked at

$59.31/bbl on Thursday 20th. A day earlier, there had

been strong buying interest from Chinese refiners (some

of which had temporarily reduced runs) for April and

DOI: 10.1111/oet.12768

8© 2020 John Wiley & Sons Ltd Oil and Energy Trends. 2020;45:8–9.wileyonlinelibrary.com/journal/oet