ILMA Compoundings - June 2020 - 16

INDUSTRY RUNDOWN

Market Report
Crude, Base Oil Prices Fall, Demand
Outlook Remains Uncertain
By Amanda Hay

$/bbl

20.00

0.00

-20.00

-40.00

16

JUNE 2020

| COMPOUNDINGS | ILMA.ORG

Apr 20

Apr8

Apr 15

Apr 3

Mar 31

Mar 23

Mar 26

Mar 13

ICE Brent

Mar 18

Mar 5

Mar 10

Ma4 2

Feb 21

Feb 26

Feb 18

Feb 5

NYMEX WTI

Source: NTMEX, ICE

Feb 13

Jan28

Jan 23

Jan 15

Jan 20

Jan 10

Jan 7

Jan 2

-60.00

May 11

40.00

May14

60.00

May 1

Crude Futures
80.00

May6

OIL PRICES COLLAPSE
While oil had been on a steady decline through January
and February, crude futures reached multi-decade and
historic lows in April on an unprecedented combination
of global oil oversupply against severely depressed demand
stemming from global lockdown mandates.

Apr 23

Expectations for 2020 quickly went out the window
when domestic markets reversed course from a position of
tighter supply and robust demand in early 2020. Base oil
prices crashed when an oil price war met stalled demand as
COVID-19 rapidly spread to regions outside China.

U.S. consumption of petroleum products fell to its lowest
level in decades. Petroleum demand in the week ending
April 17 was 31% lower than the 2020 average from January
through March 13, according to the U.S. Energy Information Administration (EIA).
Global oversupply paired with severely limited fuels
demand prompted concerns that the world would run
out of crude storage, particularly in the U.S. In a historic
trading day for U.S. benchmark NYMEX West Texas
Intermediate (WTI), traders panicked and unloaded their
positions to avoid taking physical delivery of oil.
Front-month WTI pushed deep into negative territory 15
minutes ahead of the close and settled at $37.63/bbl. Global
benchmark ICE Brent did not turn negative but plunged
72% from January highs.
Crude prices then firmed on signs
that production was tapering and
consumption rising. May signaled the
start of a production-cut agreement
between OPEC and its allies.
Market forces naturally prompted
U.S. shale producer spending cuts.
U.S. shale producers need crude prices
to be above $40/bbl to make drilling
economic, and NYMEX WTI crude
futures fell underneath that threshold
in mid-March.
U.S. oil drillers reduced the number
of working rigs by 57% in about two
months to a record low of 339 as of
May 15, according to Baker Hughes.
They are also shutting in wells due to
poor economics.
As a result, U.S. production fell
from an all-time high of 13 million
barrels per day (bbl/day) to 11.6 bbl/
day as of May 8, according to the EIA.
Apr 28

U.S. base oil markets faced unprecedented conditions
in the first half of 2020 - the most striking of which was
crippled demand.


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ILMA Compoundings - June 2020

Table of Contents for the Digital Edition of ILMA Compoundings - June 2020

ILMA Compoundings - June 2020 - Cover1
ILMA Compoundings - June 2020 - Cover2
ILMA Compoundings - June 2020 - 1
ILMA Compoundings - June 2020 - 2
ILMA Compoundings - June 2020 - 3
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