LONDON (Reuters) – Oil prices fell on Wednesday after Saudi Arabia and the United Arab Emirates announced plans to boost production capacity and OPEC and the U.S. Energy Information Administration (EIA) cut oil demand forecasts because of the coronavirus outbreak.
Brent crude was down $1.03, or almost 2.8%, at $36.19 per barrel by 1355 GMT, while U.S. West Texas Intermediate (WTI) crude was off 99 cents or 2.9% at $33.37.
With the collapse of coordinated output cuts by Saudi Arabia, Russia and others, the Saudi energy ministry has directed producer Saudi Aramco to raise its output capacity to 13 million from 12 million barrels per day (bpd).
UAE national oil company ADNOC also said it would raise crude supply to more than 4 million bpd in April and accelerate plans to boost its output capacity to 5 million bpd, a target it previously planned to achieve by 2030.
“Saudi’s shock and awe strategy suggests to us that to bring Russia back to the negotiating table, it is serious in causing severe price and revenue pain for all oil producers,” UBS analysts said in a note.
“Higher oil inventories will likely weigh on prices over the coming months.”
(Graphic: Oil price forecasts dim after price war begins – here)
Russian Energy Minister Alexander Novak said Saudi Arabia’s plans to increase production capacity were “probably not the best option”, adding Moscow had several phone calls with OPEC and non-OPEC members, but that no partners had agreed to its proposal.
Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) said in a monthly report that it expected global demand to rise by just 60,000 bpd in 2020, a reduction of 920,000 bpd from its previous forecast.
The U.S. Energy Information Administration (EIA) also said global oil demand is expected to dive by 910,000 bpd in the first quarter due to coronavirus outbreak.
Oil prices had climbed $2 earlier in the session on hopes that spending cuts by North American producers to cope with multi-year low crude prices would lead to a drop in output.
“Any reduction in spending and drilling will take time to show up in actual production figures and is unlikely to mitigate the bearish impact of a massive Saudi output increase, in case the latter does happen,” oil brokerage PVM’s Tamas Varga said.
Policymakers and central banks have been taking measures to bolster their economies against disruption caused by the coronavirus outbreak, the latest being the Bank of England which unexpectedly cut interest rates by half a percent on Wednesday.
“Oil’s supply-demand dynamics still point to a bias for weakness, as Saudi Arabia and Russia engage in a price war that threatens to push global markets into oversupplied conditions, at a time when global demand is being eroded by the coronavirus outbreak,” Han Tan, Market Analyst at FXTM.
(Graphic: Oil price dive turns up the heat on OPEC finances – here)
A worker at Equinor’s Martin Linge offshore oil and gas development has been diagnosed with the coronavirus and is being held in isolation, the Norwegian energy firm said. It said activity on the field will be reduced on Wednesday.
However, China’s independent oil refiners are cranking up production as local governments begin to relax strict measures to contain the coronavirus and fuel demand begins to recover.
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