April 2020 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil extended losses in April when falling by $12.66 (-43.3%), to $16.55 per barrel -- the lowest nominal price since March 1999. The April drop occurred within the context of a stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of a 66,000 barrel-per-day (BPD) decline in the amount of petroleum products demanded/supplied during February (to 19.8 million BPD), and a jump in accumulated oil stocks (April average: 509 million barrels). 

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From the 4 May 2020 issue of The Energy Bulletin:

The story of the coronavirus’s impact on the world’s economy has yet to be written. Around the world, billions of people are still quarantined or living under social separation rules that severely restrict economic activity. Until either a vaccine for the virus is developed and disseminated to the 7.6 billion of us, or a “herd immunity” arises under which some 60-70 percent of the world’s population has been infected by the virus, this story will go on. Last week parts of the US and Europe relaxed harsh stay-at-home mandates, which had stopped much economic activity.

This relaxation of the lockdown in the US and EU came with complex rules of social behavior that are supposed to slow the growth of the contagion. It will be several weeks before we know how well the new standards work, and even more important is whether a critical mass of people is willing to risk lives by engaging in “non-essential” economic activities such as going to shopping malls. If this vital mass does not form, then many formerly profitable commercial businesses will not be profitable until the epidemic is over, which could take years.

In the meantime, global air travel is virtually halted, although the Chinese claim it has started up again while giving few details. Many international borders are closed, and there is close to zero tourist industry in operation. Even more severe is that the global supply chain has been severely damaged, and many economic enterprises can no longer receive adequate supplies of raw materials, parts, or finished goods. In the past week, the specter of global food shortages have arisen.

The US economy contracted in the first quarter at its sharpest pace since the Great Recession as stringent measures to slow the spread of the novel coronavirus almost shut down the country. The drop in the GDP at an annual rate of 4.8 percent reported on Wednesday reflected a plunge in economic activity mostly in the last two weeks of March. The rapid decline in GDP reinforced analysts’ predictions that the economy was already in a deep recession and left economists bracing for a record slump in output in the second quarter.

With much of the economy paralyzed, the Congressional Budget Office has estimated that economic activity will plunge this quarter at a 40 percent annual rate. “The longer consumers are stuck at home and workers can’t get to their jobs, the greater the structural damage to the US economy — permanent loss of household income, permanent business closures, permanent job losses, reduced business investment — which would prevent a strong rebound,” said Gus Faucher, chief economist at PNC Financial Services Group.

With a flood of unemployment claims continuing to overwhelm many state agencies, economists say the job losses may be far worse than government tallies indicate. The Labor Department said Thursday that 3.8 million workers filed for unemployment benefits the week before last, bringing the six-week total to 30 million. But researchers say that millions of others have lost jobs but have yet to see benefits. Traffic congestion and hours worked in South Carolina, and other states in which lockdowns were eased late last week, indicate workers and consumers haven’t resumed their pre-pandemic routines. 

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Selected highlights from the 1 May 2020 issue of OilPrice.com’s Oil & Energy Insider include:

Oil is set to post its first weekly gain in more than a month as production cuts and some relatively positive news regarding the coronavirus boosted sentiment. The OPEC+ deal begins today, while shut-in wells have begun to pile up in meaningful volumes.

Fed opens spigot for shale. The U.S. Federal Reserve revised its Main Street Lending Program to allow larger and more indebted companies to qualify for lending. The announcement received criticism from multiple corners. “The major changes announced today mirror the top requests of the oil and gas industry,” a congressional watchdog said. “That raises questions about how the changes promote the broader public interest -- especially when these companies will still have no real obligation to retain or rehire their workers.” Even the powerful American Petroleum Institute spoke out. “You can’t have capitalism on the way up and socialism on the way down,” an API executive said.

Shale production cuts rising. With U.S. storage about to hit tank tops in a matter of weeks and the world deep in the throes of the biggest pandemic in modern history, the inevitable has begun to unfold: The arduous and costly process of well shut-ins.

Oil and gas industry to lose $1 trillion. Oil and gas companies are set to lose $1 trillion in revenues this year, according to Rystad Energy.

Wells Fargo revives ‘bad loans’ unit. Wells Fargo has brought back a special department to handle bad energy loans. Some of the bankers involved previously worked on the same oil and gas loans issued by the bank, Reuters reports.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.