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Oil takes worst weekly tumble Since 2008

A licking pipe of PDVSA Petropiar facilities near the Bare Operational Center in el El Tigre in Anzoategui state, Venezuela on Sunday October 14, 2018 .
A licking pipe of PDVSA Petropiar facilities near the Bare Operational Center in el El Tigre in Anzoategui state, Venezuela on Sunday October 14, 2018 .

Oil headed for its biggest weekly drop since 2008 as an unprecedented dual supply-demand shock showed no signs of abating.

Futures reversed a loss to rise on Friday, tracking a rebound in U.S. equity futures, while a retaliatory American attack on an Iraqi militia may have lent some support. They’re still down 21% this week as the coronavirus batters demand, with Wall Street suffering its biggest loss since 1987 on Thursday.

The schism between the former OPEC+ allies appeared to harden as Russian oil producers said they plan to ramp up production next month, while the Kremlin said there are no plans for discussions with Saudi Arabia. The kingdom said earlier in the week that it would boost output by more than 25% in April.

The deluge of new supply coinciding with evaporating demand threatens a major shake-out on the U.S. shale patch and could destabilize the governments of some OPEC producers. It’s pushed a gauge of oil volatility to record levels and sent Brent’s market structure into a supercontango, where prompt prices are more than $10 a barrel cheaper than contracts for delivery in 12 months.

“That supply-side shock that we’re seeing is expected to start almost immediately,” Daniel Hynes, senior commodities analyst at Australia & New Zealand Banking Group Ltd., said in a Bloomberg TV interview. “The market is still hopeful of some sort of stimulus-led recovery later in the year, so that’s why the back end of the curve is holding up relatively well.”

West Texas Intermediate futures for April delivery rose 3.7% to $32.65 a barrel on the New York Mercantile Exchange as of 7:28 a.m. in London after dropping as much as 3.7% earlier. It closed down 4.5% on Thursday.

Brent crude for May settlement added 3.3% to $34.32 a barrel on the ICE Futures Europe exchange. The contract plunged 7.2% on Thursday and has fallen 24% this week. The global benchmark traded at a $1.21 premium to WTI for the same month, near the narrowest since late 2016.

Governments and central banks have so far been powerless to stem the coronavirus-driven rout that’s reverberating through financial markets and threatening a global recession. President Donald Trump has yet to offer a detailed economic rescue package, while the European Central Bank left interest rates unchanged, although it took steps to boost liquidity.

In the U.S., several independent oil companies have already announced plans to scale back operations amid the flood of cheap crude. The American industry is also encouraging the Trump administration to waive a law that mandates only domestic vessels can be used to transport goods between U.S. ports.

The response from U.S. drillers won’t be enough to prevent a record crude production surplus of 6 million barrels a day next month, Goldman Sachs Group Inc. said in a note by analysts including Damien Courvalin. The unprecedented pace of inventory builds may quickly overwhelm offshore and onshore storage, which could force a shut-in of output from inland high-cost producers at near $20 a barrel, they said.

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