Demand Meltdown Crushes Fuel Prices, Drags Crude to 4-Year Low

Source: By Alex Longley, Jack Wittels and Jacqueline Davalos, Bloomberg • Posted: Monday, March 16, 2020

Gasoline may soon cost less than the crude it’s made from as plunging fuel demand batters the oil market.

The U.S. benchmark crude tumbled to a four-year low Monday while gasoline futures in New York plummeted as much as 25% to the weakest level since 2005. The meltdown extended to jet fuel and diesel as the coronavirus outbreak restricts people’s movement globally and shuts down swathes of the world’s economy. Oil-refiners’ margins had been cushioned by nosediving crude costs, but that will be almost impossible to sustain if end-user demand keeps collapsing.

“Fuel is getting crushed,” said Phil Flynn, senior market analyst at Price Futures Group Inc. “The demand destruction we feared is already taking place.”

U.S. gasoline may soon cost less than crude

With airlines cutting the number of flights daily and a growing number of European countries in lockdown, oil markets are heading for an unprecedented glut. People are driving far less, hitting demand for gasoline and diesel. All the while, Saudi Arabia and Russia are planning to boost crude production as they engage in a price war for market share.

The spectacular plunge in crude prices hasn’t deterred state-run Saudi Aramco from pumping historic levels of oil. The company plans to produce at its maximum capacity of 12 million barrels a day in April, Chief Executive Officer Amin Nasser told investors, adding, “I doubt if May will be any different.”

relates to Demand Meltdown Crushes Fuel Prices, Drags Crude to 4-Year Low

“Demand is going to stay weak at a time when crude oil is just being pumped like mad out of the ground,” said Steve Sawyer, director of refining at Facts Global Energy. “Anything to do with petrol, diesel, jet fuel, obviously, is going to struggle.”

West Texas Intermediate crude for April delivery fell 7.3% to $29.41 a barrel at 12:28 p.m. on the New York Mercantile Exchange. Brent crude for May settlement fell $3.63, or 11%, to $30.22 a barrel, putting its premium over WTI at 37 cents a barrel.

Nymex gasoline traded at 71.18 cents a gallon, almost at parity with WTI after briefly dipping below the U.S. benchmark for the first time since 2009. As recently as March 10, Nymex gasoline futures traded at a premium of almost $18 a barrel to WTI. Diesel and jet fuel prices in New York fell to their lowest intraday levels since early 2016.

— With assistance by Javier Blas