LONDON (Reuters) – Oil prices fell on Wednesday after Saudi Arabia and the United Arab Emirates announced plans to boost production capacity and the coronavirus fed worries about demand.
FILE PHOTO: Pump jacks operate in front of a drilling rig in an oil field in Midland, Texas U.S. August 22, 2018. Picture taken August 22, 2018. REUTERS/Nick Oxford/File Photo
Brent crude was down $1.09 or almost 3% to $36.13 per barrel by 1221 GMT, while U.S. West Texas Intermediate (WTI) crude was off $1.06 or 3.1% at $33.30.
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 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.
Tanker rates soared after Saudi Arabia’s National Shipping firm, Bahri, tentatively chartered as many as 14 supertankers to ship crude oil to customers worldwide.
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,” said oil broker PVM’s Tamas Varga.
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.
Reporting by Bozorgmehr Sharafedin in London, additional reporting by Yuka Obayashi in Tokyo; editing by Jason Neely