Oil settles sharply lower as COVID-19 containment efforts spread

Oil prices finished the week lower amid stepped-up US COVID-19 containment efforts, and a lack of clarity regarding US efforts to bail out domestic oil producers.

April WTI settled down 2.79 at $22.43/b and ICE May Brent was $1.49 lower at $26.98/b.

Front-month WTI briefly crossed the $20/b level in the final minutes of trading, before bouncing to settle down 11% on the day.

New York Governor Andrew Cuomo announced Friday he would sign an executive order mandating 100% of non-essential workers remain home beginning Sunday, March 22. The announcement comes on the heels of a similar order issued by California Governor Gavin Newsom on Thursday night.

The stay-at-home order could be enforced by civil fines and mandatory closures, Cuomo said at a press conference Friday.

NYMEX April ULSD settled down 3.54 cents at $1.0063/gal and April RBOB was 7.96 cents lower at $60.54/gal. The NYMEX RBOB contract settled at a fresh all-time low for the second time this week.

"WTI crude finished the week on a terrible note as the crude demand outlook was dealt another blow as extreme measures are rolled throughout the US, skepticism on how effective it will be for the US government to fill up the SPR, and if Texas could bring back OPEC+ to life," OANDA senior market analyst Edward Moya said. "The US crude benchmark is in trouble as many temporary solutions will ultimately lead to a slow painful death for much of the US shale industry."

The Texas Railroad Commission, which regulates the oil and gas industry, is talking about taking the step of mandating production cuts in the state for the first time since 1973, although doing so is not yet supported by a majority of the three-person commission.

A few Permian producers, including Pioneer Natural Resources, have pushed for the potential measure as a way to combat falling oil prices, but chairman of the Texas Railroad Commission Wayne Christian said Friday that he was opposed to the idea.

Requiring operators in the prolific Permian Basin to throttle back output to prop up prices would be a failing strategy, allowing other producers to fill the void and take Texas' market share, Christian said in a statement.

Shale drillers continue to dramatically scale back their spending, but they are only moderately reducing their crude production volumes. Big capital budget cuts from shale producers in March have averaged close to 30%, but the companies that have announced reductions to their 2020 production guidance are only seeing their volumes falling by closer to 5%-10%.

On Thursday, the US Energy Department Thursday formally requested to buy up to 30 million barrels of sweet and sour crude from US producers for the Strategic Petroleum Reserve, the initial step in the Trump administration's plan to lessen the impact of low oil prices on domestic operators by filling government stocks to capacity.

Funding for SPR purchases could present a major obstacle for the Trump administration. But the Democrat-controlled House of Representatives is unlikely to go along with the plan without demanding concessions on green energy initiatives that the Trump Administration would find unpalatable, analysts said.