U.S. West Texas Intermediate and international-benchmark Brent crude oil futures markets are edging lower on Thursday shortly before the regular session opening at 12:00 GMT and the release of the weekly U.S. Unemployment Claims report at 12:30 GMT.
This report should trigger a volatile reaction in the crude oil market since it will give traders an indication of just how much demand should drop due to unemployment as the country continues to battle the coronavirus pandemic.
Demand Expected to Drop Further
Today’s early price action suggests traders believe the U.S. $2 trillion emergency stimulus will not be enough to shore up economic activity. Therefore, demand is likely to continue to erode.
“With lockdowns in many countries, expectations of oil demand contracting by more than 10 million barrels per day (bpd) are rising. Such demand loss will increase the supply glut,” Australia and New Zealand Banking Group analysts said in a note.
Big Shipments Will Contribute to Supply Glut
Traders are anticipating a surge in supply from Saudi Arabia and Russia. Both countries vowed to increase production after the collapse of a supply-cut pact between OPEC and other major producers. Traders are saying Saudi Arabia is planning to ship more than 10 million bpd from May.
U.S. Energy Information Administration Weekly Inventories Report
The EIA reported on Wednesday that U.S. crude inventories rose by 1.6 million barrels during the week-ending March 20. This marked the ninth straight week of increases.
Products supplied, a proxy for U.S. demand, dropped nearly 10% to 19.4 million bpd, EIA data showed.
A worse-than-expected weekly U.S. jobless claims report today could drive WTI crude oil under $20.
If the report misses to the good, we could see some short-covering, but don’t expect the rally to last with Goldman Sachs predicting oil demand to fall by 10.5 million barrels per day in March and by as much as 18.7 million bpd in April.
“A demand shock of this magnitude will overwhelm any supply response including any potential core-Organization of the Petroleum Exporting Countries (OPEC) output freeze or cut,” the investment bank said.
“The scale of the demand collapse will require a large amount of production to be shut-in, of potential several million barrels per day,” the bank said, adding that such a hit on production would not likely be reversed quickly.