US crude prices fell to an 18-year low and Brent lost more than 6.0 per cent after the United States reported its biggest weekly inventory build on record, while global demand is expected to fall to quarter-century lows due to the coronavirus pandemic.
The grim figures undercut the positive feeling from the weekend agreement between global oil producers to phase-in a record output cut, making clear that supply reductions would not be enough to prevent storage from filling and leaving countless barrels stranded.
“We have crude oil backing up in the system in epic fashion,” John Kilduff, a partner at Again Capital in New York, said after the US government’s weekly oil inventory report.
“This is probably one of the most bearish, if not darkest reports I’ve ever seen.”
Brent crude settled at $US27.69 a barrel, dropping $US1.91, or 6.45 per cent.
US West Texas Intermediate crude settled at $US19.87 a barrel, shedding 24 US cents, or 1.19 per cent.
WTI logged its lowest close since February 2002.
For WTI to move much lower, the United States will likely need to near crude storage capacity, said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.
“The market is showing at near two-decade lows that we need to have more evidence that we’re going to have a huge glut on our hands that will take some time for it to be whittled away before people get aggressively short below $US20,” McGillian said.
Crude stocks in the United States, the biggest crude-producing country, surged by 19 million barrels last week, while refiners cut capacity use to their lowest levels since 2008 due to plummeting demand caused by efforts to curb the spread of the novel virus, the U.S. Energy Information Administration said.
The inventory report came shortly after the International Energy Agency forecast oil demand would dive 29 million barrels a day in April to levels unseen in 25 years and said no output cut could fully offset the near-term falls facing the market.
The Organisation of the Petroleum Exporting Countries, along with Russia and other producers – a grouping known as OPEC+ – has partnered with other oil-pumping nations, such as the United States, in the record global supply agreement.
Markets rallied in advance of the pact, under which the OPEC+ group will cut 9.7 million barrels per day, along with a hoped-for additional 10 million bpd from other nations. However, it is unclear if the total cuts, which include purchases into strategic reserves and market-induced reductions, will approach the lofty 20 million bpd figure touted by some, including Saudi officials.
“There is no feasible agreement that could cut supply by enough to offset such near-term demand losses,” the IEA said in its monthly report.
Officials and sources from OPEC+ states indicated the IEA, the energy watchdog for the world’s most industrialized nations, could announce purchases of oil for storage of up to several million barrels to buoy the deal.
As crude tank farms around the United States and globally fill, oil futures contracts suggest a heavy glut will overhang markets for months.
Current contracts are trading at a lower price than contracts expiring several months from now.
But as of Wednesday, no such IEA purchases had materialised. The agency, in its report, said it was “still waiting for more details on some planned production cuts and proposals to use strategic storage.”
The United States, India, China and South Korea have either offered or are considering such purchases, the IEA added.