The GERM Report

-COVID-19 claims its first corporate casualty

-US could lease space in strategic reserve.

A dour warning from US officials about the sweeping impact of the coronavirus put broader markets in a tailspin on Wednesday. The US president has finally come to terms, it seems, with the severity of the situation, while the nation’s top health officials warn of darker days ahead. In commodities, the obvious call is for a massive build in US crude oil inventories just as Saudi Arabia fire-hoses the market with crude oil. Storage, meanwhile, is at a premium. The market strain, however, may have an unexpected silver lining with BP expecting lower production, though Whiting Petroleum earned the distinction of becoming the first corporate casualty from COVID-19.

Brent crude oil was down 3.2% as of 8 a.m. ET to trade at $25.50 per barrel. The market seems to be expecting the US Energy Information Administration to report a massive build in crude oil and gasoline inventories for the week ending March 27, though distillates could see a draw.

US President Donald Trump acknowledged during his daily reading of the coronavirus pandemic that this is indeed one hell of a situation. Dr. Andrew Fauci, the point man for the US task force coping with the issue, said “We’ve got to brace ourselves” for the difficult road ahead. Those warnings spilled over into Wednesday trading, with equities pointing to another down day on Wall Street.

With segments of the US, and indeed the world’s, economy shutting down amid widespread demand disintegration, producers are running out of space to put their products. US Sen. Lisa Murkowski, R-Alaska, called on the EIA, one of the more transparent data providers in the market, to up the ante on the data it provides.

“Producers will continue to produce, filling up all kinds of tanks and tankers, until capacity is reached,” she said in a statement. “Available petroleum storage can serve as a gauge of the potential for shut-in production, providing us some measure of both imminence and severity.”

The lack of demand will become apparent by 10:30 a.m. ET when EIA releases its inventory data for the week ending March 27. With the glut increasing, word on the street is that the Trump administration may lease space in its strategic reserves for US producers. There may be some solace, at least as far as the glut is concerned, in a statement from BP indicating production during the first quarter is expected to be lower than the previous term, in the range of 2.5 billion to 2.6 billion barrels of oil equivalent per day. As with its peers, the British supermajor announced it would cut capital expenditures by about 25%

“This may be the most brutal environment for oil and gas businesses in decades, but I am confident that we will come through it – we know what to do and we have done so before,” Chief Executive Bernard Looney said in a statement.

That sentiment did not extend to North Dakota producer Whiting Petroleum. Bradley J. Holly, the company’s top official, said Wednesday that enough was enough.

“Given the severe downturn in oil and gas prices driven by uncertainty around the duration of the Saudi/Russia oil price war and the COVID-19 pandemic, the company’s board of directors came to the conclusion that the principal terms of the financial restructuring negotiated with our creditors provides the best path forward for the company,” he said in a statement.

Elsewhere, the global crisis is taking on a weaponized tone. With Russia seemingly coming to the US rescue, both in the oil market and in medical terms, Saudi Arabia continues to flood the market with crude. In a strategy that is sure to make game theorists drool, Riyadh said it was pumping at about 12 million bpd and would back down only if other producers – including the United States and Russia – do the same. Right-leaning lawmakers in the United States had called on Saudi Arabia to switch sides and balance against Russia in the oil market war. That prospect, however, has fallen by the wayside. Washington, meanwhile, sees an opportunity to check an item off its geopolitical wish list; regime change in Venezuela. If President Nicolas Maduro agrees to an interim administration followed by national elections, among other things, US special envoy Elliot Abrams said “the U.S. would suspend sanctions on the government, on PDVSA, the oil company, and on the oil sector.”