By Geoffrey Smith
Investing.com -- Crude oil prices extended their losses after the Organization of Petroleum Exporting Countries issued new forecasts predicting that global oil demand will effectively stagnate this year due to the coronavirus outbreak.
In its monthly report for March, the cartel revised down its forecast for demand growth to a mere 60,000 barrels a day. In its previous report, it had still forecast growth of 990,000 b/d.
By 9 AM ET (1300 GMT), U.S. crude futures were down 3.9% on the day at $33.02 a barrel, while the global benchmark Brent was down 4.3% at $35.62.
The news came hot on the heels of an announcement by Saudi Aramco (SE:2222) that the Saudi government had instructed it to raise its maximum sustainable production capacity by 1 million barrels a day to 13 million b/d, the latest sign that it intends to wrest back market share lost to higher-cost producers as a result of the ‘OPEC+’ agreements of the last four years.
Crude prices have tumbled since OPEC and allies led by Russia failed to agree on deepening their output cuts on Friday. Saudi Arabia responded by launching an all-out price war, saying it would ramp up oil sales to over 12 million barrels a day in April from some 9.7 million b/d in March. Crude prices fell by a quarter on Monday, their worst one-day decline since 1991.
Elsewhere Wednesday, the U.S. government said it expects U.S. oil production to start falling in May in response to lower prices.
"EIA expects monthly U.S. crude oil production to begin declining around May, with production falling from 13.2 million b/d in May to 12.8 million b/d in December 2020," the government said in its short-term energy outlook, which was delayed by a day to take the new circumstances into account.
The EIA forecasts U.S. crude oil production will average 13.0 million b/d in 2020, up 0.8 million b/d from 2019, but it expects it to fall to 12.7 million b/d in 2021. The forecast decline would mark the first annual U.S. crude oil production decline since 2016.