* Saudi, UAE will add 3.6 mln bpd to oversupplied market
* Russia's Novak questions Saudi decision
* OPEC and EIA cut global oil demand forecast
* EIA says U.S. inventories rose 7.7 mln bbls in most recent
week
(Updates with settlement prices, recasts at top)
By David Gaffen
NEW YORK, March 11 (Reuters) - Oil prices fell 4% on
Wednesday, sinking into the close of trading with renewed
weakness in the stock market after the World Health Organization
said the global coronavirus outbreak is now a pandemic, and as
major oil producers announced plans to escalate the burgeoning
price war.
Brent crude LCOc1 settled down $1.43, or 3.8%, at $35.79
per barrel, while U.S. West Texas Intermediate (WTI) crude
CLc1 ended down $1.38 or 4% to $32.98.
Risk assets tumbled throughout the day, but accelerated
losses late as the number of coronavirus cases increased and
numerous countries restricted travel. "What caused the dump in oil prices in the last minutes
before the oil market close was when the stock market made new
lows," said Phil Flynn, analyst at Price Futures Group in
Chicago. "News on the coronavirus does not seem to be inspiring
demand hopes right now."
Both the Organization of the Petroleum Exporting Countries
and the U.S. Energy Information Administration (EIA) slashed oil
demand forecasts because of the coronavirus outbreak, as they
now see demand contracting in this quarter.
Saudi Arabia and the United Arab Emirates announced plans to
boost production capacity following the collapse of coordinated
output cuts by Saudi Arabia, Russia and others. The Saudi energy
ministry has directed producer Saudi Aramco 2222.SE 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.
Trading in long-dated Brent futures contracts points to
expectations that supply will continue to rise. The current
Brent front month contract recently traded at more than $5 below
the six-month contract LCOc1-LCOc6 , the biggest discount since
January 2016.
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. 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. Numerous North American producers have announced spending
cuts including Occidental Petroleum Corp OXY.N , Marathon Oil
Corp MRO.N and Diamondback Energy Inc FANG.O .
"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.
Weekly data on U.S. inventories showed little effect from
the coronavirus outbreak. Crude stocks rose by 7.7 million
barrels, but inventories of gasoline and diesel fell sharply, as
refining runs remain at seasonally low levels. EIA/S
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 percentage point on
Wednesday. A worker at Equinor's EQNR.OL 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. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
GRAPHIC-Oil price forecasts dim after price war begins png https://tmsnrt.rs/2W15ejG
GRAPHIC-Oil price dive turns up the heat on OPEC finances png
https://tmsnrt.rs/2IulvWo
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