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Supply up/demand down
OPEC+ eyes strategy shift to production boost in quest for market share
Steve Sutherlin Petroleum News
Alaska North Slope crude plunged $1.74 April 30 to close at $64.92 per barrel, West Texas Intermediate plummeted $2.21 to close at $58.21 and Brent dove $1.13 to close at $63.12 as price weakness accelerated on the specter of swelling supply and diminished demand.
ANS crossed below $65 on the day and WTI slid into the $50s, catalyzed by signals from Saudi Arabia that it is not willing to prop up crude prices with additional supply reductions and can weather a prolonged phase of lower prices.
Reuters broke the news of the kingdom's strategy shift based on five sources with knowledge of talks between the Saudis, allies and industry experts. The move suggests that the Saudis may flood the market to squeeze out competitors with higher production costs and discipline over-quota producers in the Organization of the Petroleum Exporting Countries plus its allied producing nations.
"Now there is a feeling that the Saudis could go old school 2020-style and open the taps for size," Mizuho's Robert Yawger said in a note quoted in a Wall Street Journal report.
"The very real possibility that OPEC+ will continue to bring extra barrels to the market as it fights to keep order within its ranks is added to the diplomatic thrusts in Ukraine and Iran, which if successful means more international crude on the water at a time when a trade war will squash any hope of demand growth," said PVM analysts quoted in a CNBC report.
"It raises concern that we could be headed towards another production war," said Phil Flynn, senior analyst with Price Futures Group. "Are the Saudis trying to send a message that they are going to get back their market share? We'll have to wait and see."
OPEC+ will bump production up by 411,000 barrels per day May 1, followed by a May 5 meeting to discuss boosting June output levels.
A surprise drawdown of U.S. crude supplies was not enough to staunch the red ink.
U.S. commercial crude oil inventories for the week ending April 25 dropped 2.7 million barrels from the previous week to 440.4 million barrels -- 6% below the five-year average for the time of year, according to U.S. Energy Information Administration data released April 30.
Analysts answering a Wall Street Journal survey called for a build of 100,000 barrels, while a Reuters poll predicted a jump of 429,000 barrels.
Total motor gasoline inventories fell 4 million barrels for the period to 225.5 million barrels -- 4% below the five-year average for the time of year, the EIA said. Distillate fuel inventories fell 0.9 million barrels to 107.8 million barrels 13% shy of the five-year average for the time of year.
ANS plunged $1.55 April 29 to close at $66.67, while WTI plunged $1.63 to close at $60.42 and Brent plunged $1.61 to close at $64.25.
On April 28, ANS retreated $1.07 to close at $68.22, WTI slid 97 cents to close at $62.05 and Brent dipped $1.01 to close at $65.86.
Trading was placid April 25, with ANS and WTI each slipping by 23 cents to close at $69.28 and $63.02 respectively, while Brent trimmed 32 cents to close at $66.87.
ANS fell 54 cents April 24 to close at $69.05, as WTI fell 52 cents to close at $62.79 and Brent dipped 43 cents to close at $66.55.
From Wednesday to Wednesday, ANS dropped $3.59 from its April 23 close of $68.51 to $64.92 on April 30.
On April 30, ANS closed at a $6.71 premium to WTI, and at a $1.80 premium to Brent.
Over the month of April, crude prices turned in the steepest decline in three and one-half years. ANS tumbled $12.41 from its close March 31 of $77.33, to close at $64.92 April 30.
Demand seen as threatened On the demand side, chinks were seen in economic data on both sides of the U.S./China trade dispute.
China's export orders cratered in April and manufacturing activity turned in the weakest performance in more than a year, while newly released U.S. data showed consumer confidence eroding on concerns over tariffs, the Wall Street Journal reported April 30. "There are also concerns that recent strength in U.S. economic data was only temporary, due to stockpiling ahead of the tariffs that now appears to be abating," ANZ analysts said.
Technical analysis portended future demand dissipation.
"The Brent crude oil forward curve has displayed a very unusual shape lately with front-end backwardation combined with deferred contango," said Bjarne Schieldrop, SEB Research chief commodities analyst. "Market pricing tightness today but weakness tomorrow."
Trade war clouded demand visibility coupled with rising OPEC+ production likely will hit crude oil prices this year, based on a Reuters poll released April 30.
An April survey of 40 economists and analysts projected Brent to average $68.98 in 2025, down from March's estimate of $72.94. WTI is expected to average $65.08, versus a $69.16 outlook the prior month.
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